Semiconductor inventories hit record levels

The analyst reports total semiconductor inventory at the end of the second quarter standing at 83.4 days, exceeding the last record high of 83.1 days, three years ago. IHS warns that the current level is at least 11% above the seasonal average, while stockpiles are just shy of the 11.1% oversupply condition in 2008, prior to the economic downturn. It adds that Q2 inventory DOI represents a jump of 3.5 days from 79.9 days in Q1 – the first time in 12 consecutive quarters that DOI has tipped over the 80 day mark. IHS analyst, Sharon Stiefel, said: "For the semiconductor industry, wading into such potentially troubling territory – reminiscent of the dark days leading into the recession – could herald the beginning of a critical inventory adjustment period. The correction is likely to [take] place over the next few quarters and get completed only by mid 2012, which would call for suppliers making a prolonged modification in their inventory strategies to avoid dangerous oversupply." The analyst is already scaling back Q3 revenue projections, on the back of a report from IHS Global Insight which predicts a 40% chance of Europe and the US entering into another recession. It has also revised its semiconductor revenue forecast to 2.9% growth in 2011, down from 4.6% which it projected in August and a steep plunge from the 32.4% growth recorded in 2010. Stiefel noted: "One aspect, however, represents cause for hope: the financial environment in 2011 is not as ill prepared as in 2008. US banks are healthier, many corporate balance sheets are strong and European leaders are handling the continent's sovereign debt crisis better than US institutions did in tackling the subprime debt situation that led then to a global financial collapse." Caption: Source: IHS iSuppli Research, October 2011