Chip Inventories Almost as Bad as During 2008 Crisis

It isn't hard to guess that the chip market isn't doing so hot lately, but analysts have uncovered that things are somewhat worse than most would tend to believe.

One way of knowing whether or not demand for a specific IT segment is healthy is to look at the product stockpiles.

In other words, the Days of Inventory (DOI) levels can show if a product type is doing well or not.

It so happens that the semiconductor industry (DRAM, NAND, CPU, etc.) is going through a particularly hard period.

According to IHS, the stockpiles at the end of the second quarter stood at 83.4 days, 11% above the historical seasonal advantage usual for the period.

It is also quite the jump from the 79.9 days at the end of Q1, 2011 and higher than the 83.1 DOI of Q1 2008.

In other words, this was the first time in 12 consecutive quarters that the 80-day mark is surpassed, which basically means that sales are so weak that saying the chip market is suffering from oversupply would be an understatement.

“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,” said Sharon Stiefel, semiconductor analyst at IHS.

“The correction is likely to take place during the next few quarters and will not be completed until mid-2012. As such, it will involve suppliers making a prolonged reduction in their inventory levels to avoid dangerous oversupply situations.”

As it is, revenue for the chip segment is still expected to grow this year, but only by 2.9%, not 4.9% as was assumed back in August.

The fact that the worldwide economy seems to be, at best, stalling, is not exactly helping matters (the recession is still in play in some parts of the world).