Q3 chip stockpile bigger than thought - researcher

Excess inventory topped $1.6bn

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The value of all the unsold semiconductors sitting in the electronics supply chain during Q3 proved higher than expected, market watcher iSuppli said yesterday.

The result: chip makers are cutting the number of wafers they put on their production lines and are reviewing capital expenditure plans going forward, the researcher added.

In October, iSuppli forecast that the excess inventory in the channel in Q3 would total $1.1bn. Two months on, and with more accurate data at its disposal, the company upped its final figure to $1.6bn, up 103 per cent from Q2's $800m total.

Almost 90 per cent of that stockpile was to found sitting in chip manufacturers' warehouses. The rest was held by product manufacturers and distributors. It's the latter two groups' attempts to reduce their own inventories that have caused the world's chip makers such trouble during Q3 and Q4 this year.

iSuppli estimates Q4's excess stock value to total $1.5bn, down just 6.3 per cent on the previous quarter and the second-highest inventory value since Q2 2002, when inventory ballooned to $2.5bn, dwarfing even Q3's figure.

"In order to counteract inventory build-ups and collapsing lead times, suppliers are pulling back on production," iSuppli said. Orders for new chip-making equipment and wafer-starts will decrease this quarter, the company forecast, and fall further in 2005. "Utilisation at the major foundries also will plunge over the next two quarters," it warned.

Earlier this month, iSuppli downgraded its forecast for world chip sales in 2005, with growth over 2004's total falling from its previous prediction of 9.6 per cent to 4.7 per cent. Less bullish researchers, like IDC, are forecasting a decline in sales next year, as the inventory correction continues to depress demand for new semiconductors. How long the correction will last remains unclear, with some forecasters looking to improvements by the end of Q1 2005 and others not anticipating an upturn until Q3. ®

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