End in sight for electronics inventory glut

MARCH 26--After more than a year of struggling with the inventory glut, the semiconductor supply chain is finally on the verge of ending its surplus stock woes, according to iSuppli Market Intelligence Services (El Segundo, CA; www.isuppli.com).

Mar 26th, 2002

MARCH 26--After more than a year of struggling with the inventory glut, the semiconductor supply chain is finally on the verge of ending its surplus stock woes, according to iSuppli Market Intelligence Services (El Segundo, CA; www.isuppli.com). At the end of December, excess semiconductor inventory was just $3.9 billion--down from its peak of $15 billion a year ago--and days of inventories were at their lowest level in nearly two years.

iSuppli projects that by the end of March, excess inventory will further decrease to just $1.8 billion at current industry consumption rates and that by the end of 2Q excess semiconductor inventory will completely disappear. Says vice president of market intelligence services Greg Sheppard, "For the first time in a year, the outlook for the semiconductor supply chain is bright virtually across the board. Nearly all the excess inventory lies downstream in the supply chain at semiconductor suppliers, EMS companies, and distributors. This means that replenishment ordering from OEMs and some EMS companies is picking up pace, and we have started to see some ordering activities actually aimed at beginning to build safety stocks to protect against future supply constraints.

"For the fourth quarter, inventory decreased in virtually all industry segments-with EMS, wireless, and distribution posting solid," Sheppard said. "There was a slight increase in excess inventory held by semiconductor suppliers for the period as a combination of overproduction and returns stacked up parts on their shelves.

"With improving conditions expected across the board in 2002, all supply chain participants must be on guard against responding to false demand signals that are cropping up in the marketplace. These are being caused by new OEM projects being shopped around by multiple EMS layers. In this scenario, one actual order could mistakenly look like six and spark an unnecessary inventory build-up, so caution is paramount."


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