Report: Intel Chip Glut Swells Inventory

MANHASSET, N.Y. — Excess stockpiles of PC microprocessors and core-logic chipsets caused surplus semiconductor inventories to rise more than expected in the second quarter, with Intel Corp. contributing much of the excess inventory, according to iSuppli Corp.'s Semiconductor Inventory Tracker service.

The report estimated the value of excess semiconductors in the supply chain rose to $2 billion the second quarter, up 77.6 percent from $1.1 billion the first quarter, exceeding iSuppli's guidance of $1.3 billion of excess inventory.

The $2 billion is the highest since inventories swelled to $1.6 billion the third quarter of 2004. However, the level is not alarming as much of the excess inventory can be attributed to Intel rather than being an industry-wide problem, according to iSuppli.

"With most of the excess inventory restricted to PC-related chips, and mainly to a single supplier—Intel Corp.—the surplus stockpiles are not a major concern for the global electronics industry," said iSuppli analyst Rosemary Farrell, in a statement.

In fact, the report noted a tightening of inventory in some areas, such as standard logic and analog chips, with a few power MOSFETs going on allocation.

In the midst of new processor launches, Intel triggered a price war with archrival AMD, slashing prices on older chips. According to Farrell, this has prompted customers to place smaller, more frequent orders in anticipation of further price cuts.

"Because of this, inventory will remain in Intel and AMD's hands for a longer period than usual," said Farrell.

Intel, battered by a string of poor quarters, has cut second-half guidance and capex plans and stated it is trying to clear excess inventory. However, iSuppli believes the surplus is likely to linger into 2007.

Elsewhere, the firm said the absence of major order cancellations last month lessens the likelihood of a second-half downturn that could cause inventories to rise. However, iSuppli expects the semiconductor sector to underperform compared to the normal seasonal pattern.