Semiconductor Inventories Alarmingly High in Q4 2010

Market research firm iSuppli already found that Samsung, among few others, had done well for itself as a DRAM maker during 2010, but it seems semiconductor inventories are still a bit too high according to most tastes.

The semiconductor market is composed of many subsegments, but it seems things aren't as good as they could be.

With inventories of DRAM swelling enough to drive prices to a veritable bottom (suppliers can;t afford to let them slip any lower), concerns have been present for months.

Granted, a few companies, like Samsung, managed to avoid too large a financial impact by increasing sales, but inventories are still too high.

The odd part is that the entirety of the chip market is going through a serious inventory rise, even though initial estimates involved decreasing stockpiles.

IHS had said that, by the fourth quarter of last year, stockpiles would decrease by 2.5DOI (days of inventory). Needless to say, reality is much different, indicating “an eight DOI swing compared to expectations.”

“Inventory levels arguably now are high by any standard, illustrating the difficulty of controlling chip stockpiles even with semiconductor suppliers’ arduous efforts to keep them in check,” said Sharon Stiefel, analyst, semiconductor market intelligence, at IHS.

“The sharp increase of semiconductor inventory during the fourth quarter defied expectations of a decline for the period. This inflated level of inventory could become a concern if semiconductor industry growth falls short of expectations in 2011.”

In Q3 of 2010, suppliers had 78.1 days of inventory, a figure that increased to 83.6 DOI, up 5.5 days (7%).

This is the highest level achieved since the second quarter of 2008, when DOI reached 84 days (before the last chip downturn)

Tablets and smartphones, among others, are the segments expected to generate strong semiconductor growth, but if demand isn't strong enough, oversupply is a very real possibility.