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Tuesday, October 31, 2006

Inventory woes continue

After two quarters of ballooning semiconductor inventories in the electronics supply chain, early results for the third quarter indicate that excess chip stockpiles are not going away, says market researcher iSuppli. This is storing up trouble for next year - it is unlikely that there will be a boom at Christmas, so the overhang will move into 2007.

“After excess inventories rose to $3.9 billion in the first half of the year, the overloaded situation in the supply chain was expected to ease slightly moving into the second half,” said Rosemary Farrell, semiconductor inventory analyst for iSuppli. “However, based on reported financial results, the third quarter will end up looking much like the second quarter. This means that the stress on the supply chain caused by excess inventory will remain after the holidays.”

iSuppli’s updated estimate shows excess semiconductor inventory in the global electronics supply chain in the third quarter remained flat at the second-quarter level of $3.9 billion. A lot of this is in the PC market, but there is also overhang in networking and consumer.

As analysts and Broadcom have shown, it is inventory that is the key unknown for the industry, despite strong growth rates this month. Hang on for a bumpy ride.

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