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World chip glut 'over early Q2'

Inventory stockpiles shrink

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Market watcher iSuppli has signalled the end of the inventory correction phenomenon that plagued the semiconductor industry through the latter half of 2004 and beyond.

The company said last night that the electronics supply chain is on its way to ridding itself of surplus chips by the end of Q2. By the end of this month, it expects industry-wide chip inventories to have fallen to $780m, from around $1bn at the end of Q4 2004, iSuppli said. That $780m figure is an estimate derived from the company's mid-quarter figures, it said.

Q1 2005's total is less than half the $1.62bn worth of unused chips held in the supply chain in Q3 2004, which was not only above industry observers' estimates and more than double Q2 2004's $800m total, but was the highest the figure has risen since Q2 2002's $2.5bn inventory.

iSuppli said it expects semiconductor suppliers to have four days' worth of chip inventory at the end of Q1, down from more than a week's worth at the start of Q4 2004, and five days at the beginning of the first quarter.

"Given these trends, the surplus inventory will be completely cleared out of the supply chain by early in the second quarter," the researcher reported.

iSuppli put the latest reduction down to chip makers' moves to reduce the number of new chips going into production lines during Q4. The biggest stockpiles are held by chip manufacturers who upped production on the back of the high demand experienced in the first half of 2004. But with end-user demand down, vendors reduced their own orders in H2 2004 in a bid to use up the components they had already ordered.

However, there are still some areas of concern, iSuppli said. Far Eastern mobile phone stocks remain high, with the traditional post-Chinese New Year sales hike occurring much more slowly this year. In short, don't expect the market to rebound suddenly. "Suppliers remain very cautious because the health of the supply chain can swing rapidly during times of limited visibility," iSuppli said. ®

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