Light at the end of the tunnel for chip firms

ANALYSTS ARE 'cautiously optimistic' about the fate of the semiconductor industry, but things are likely to get at least a little worse before they get better.

According to Gartner, its Dataquest Semiconductor Inventory (DASI) Index is expected to fall again in the third quarter of 2009, but growth is expected to stabilise in 2010 and even return to growth by 2011.

The problem at the moment seems to be around existing stockpiles, with most semiconductor firms wanting to shed excess stock before they get stuck into returning to business as usual.

"While some industries are experiencing a fundamental demand-side recovery, other industries are benefiting from a reduction in inventory simply because of their continued conservative efforts in keeping the supply chain lean," said Gerald Van Hoy, senior research analyst at Gartner.

"Concerns of possible shortages in inventory seem to be premature, but inventory should continue to be monitored, especially in large-scale markets, such as PCs and cellular phones."

According to Hoy the problem boils down to the fact that there are crucial differences between the present semiconductor supply chain and the one that existed at the last major crisis at the start of the century.

At a time when every dollar counts, many firms have all but stopped making chips, instead relying on existing stockpiles, but with supply lines starting to recover these companies need to start restocking the shelves or run the risk of running out.

"The decrease in demand has been severe, yet the response in absolute inventory levels has been more in tune with the change in demand," added Hoy.

"In the current situation, we see a very different pattern of response and inventory management, with the percentage differences between revenue and inventory much tighter than during the crisis in 2001 and 2002."

Any shortages that do occur will be few and far between.

With some consumers starting to open their wallets again for the latest gadgets, 2009 is still expected to remain a negative revenue growth year for the semiconductor market and should be treated as such, Hoy warned. µ