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ISuppli: IC inventories still below average

June 23, 2010 // Dylan McGrath

ISuppli: IC inventories still below average

Semiconductor vendors' chip inventory levels remain at low levels despite a small increase in the first quarter of the year, according to market research firm iSuppli Corp. Global semiconductor inventory amounted to $25.73 billion in the first quarter, up 1 percent compared with the fourth quarter of 2009 and up by a fraction of a percent compared with the first quarter of 2009, according to iSuppli.

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Inventory in the second quarter is forecasted to rise 3.3 percent to $26.6 billion, continuing the slow upward movement that began at the start of this year, iSuppli said.

When measured in terms of days of inventory (DOI), chip supplier stockpiles for the 10 semiconductor product categories tracked by iSuppli appear to be within the range of normal seasonal equilibrium, said Carlo Ciriello, analyst for financial services at iSuppli, in a statement.

"However, iSuppli believes these numbers are misleading and that the supply chain is actually leaner than current levels indicate," Ciriello said.

At 69 days in the first quarter, DOI rose by 3.2 percent from 66.8 days during the fourth quarter of 2009, iSuppli said. Such a DOI figure might give a false impression that restocking is occurring, but the DOI is inflated because of near-record-high gross margins, iSuppli said.

By using both reported revenue and inventory value in the first quarter, and then adjusting cost of goods sold via the long-term average gross margin, DOI actually measures 20 percent lower than the seasonal average, according to calculations by iSuppli analysts.

"While inventories at present are not actually 20 percent lean, the adjusted calculation indicates that current DOI levels, as reported in company financial reports, are misleadingly elevated and that in reality, chip makers and other participants in the chain are shorter on supply than is widely perceived," Ciriello said.

iSuppli data also show that except for a modest increase in the third quarter of 2009 and the rise of values beginning this year, inventory dollars have consistently declined since the third quarter of 2008, the firm said. The current inventory figures also indicate that stockpiles were not replenished in the first quarter and that device manufacturers continue to operate on "hand-to-mouth," just-in-time fulfillment schedules, according to iSuppli.

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