Analyst warns of semiconductor inventory overshoot - Embedded.com

Analyst warns of semiconductor inventory overshoot

London, UK — The semiconductor industry may ruin its current return to growth by overshooting the sector recovery, warns European semiconductor analyst, Future Horizons. And any overshooting of the recovery in 2005 would trigger another downturn in semiconductors.

The total worldwide market for integrated circuits was up 25.6 per cent over the 12 month to January 2004. Unit demand over the same period was up 31.4 per cent.

While Future Horizons predicts that the demand for semiconductors will outstrip supply well into 2005, driven by the automotive, consumer and mobile phone markets, it believes that this analysis flies in the face of perceived wisdom, which says that the industry will inevitably suffer a downturn at the end of 2004 as it reaches the end of an 18 month growth cycle.

Malcolm Penn, CEO of Future Horizons, said, “Confidence is back in semiconductors and the upswing should outlive previous positive period. But if the industry over invests in production and creates flabby inventory levels as it has traditionally done, another downturn will begin to bite late in 2005 or early 2006.

“It is impossible to fine tune fab capacity with market demand, so if these factors occur the industry will inevitably overshoot its recovery and so trigger a downturn,” added Penn.

Future Horizons cautions the electronics industry to watch for signs of over ordering as OEMs, distributors and CEMs build up inventory, coupled with planned fab capacity and the speed at which it will come online.

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