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World chip inventory fell 38% in Q4

Still $1bn worth of unsold products to clear

Chip makers' stockpiles of unsold or unused semiconductors in the electronics supply chain shrank 38.3 per cent during the last three months of 2004, market watcher iSuppli has claimed.

That marks a big drop on Q3 and comes in below the figure iSuppli had forecast previously. During the third quarter of 2004, inventory ballooned to $1.62bn worth of unsold product, more than the market watcher had estimated. When it announced the final Q3 figure, it said Q4's total would be around $1.5bn.

In fact, it's closer to $1bn, but iSuppli cautioned that this figure is also preliminary and may change when all the data are in and the calculations are completed.

"The huge build-up in the third quarter was due to over-zealous chip ordering in the first half of 2004, which clogged the distribution channel in anticipation of strong end demand in the second half," said iSuppli. "After demand failed to materialize, chip customers throughout the supply chain reassessed inventory needs in the third quarter, delaying orders and pushing parts back to suppliers. The result was a doubling in excess inventory in the third quarter.

Downward trend?

But even if the trend is now downward, $1bn remains an awful lot of product to shift, and particularly troublesome, given industry-wide expectations of a sales slowdown this year. That said, ISuppli believes the industry could still eliminate the overstock during 2005. Indeed, it reckons the business is "on track to dispense with the remaining excess in the first half of 2005".

Some areas of "congestion" remain, most notably in wireless infrastructure and DSL products. "There also have been reports of some inventory still languishing in the channel, although those stockpiles decreased significantly during the quarter.

"The inventory build during 2004 occurred for all products and across all regions. However, the burn off in the fourth quarter was slower for standard products and products sold through distribution channels. OEMs and ODMs in Taiwan and China still are dealing with excess inventories in the region. Although some product segments, such as notebook PCs, have successfully burned through stockpiles of components, others are digesting more slowly, such as with mobile phones," iSuppli noted. ®

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