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Chip Stockpiles Burning Off, Report Says

Thanks to healthy demand, semiconductor inventory levels are near 'equilibrium,' according to iSuppli.
SAN JOSE, Calif. — Healthy market conditions are allowing semiconductor suppliers to burn off their excess inventory, bringing chip stockpiles nearly back to a state of equilibrium, according to a report from iSuppli Corp. on Thursday (June 16).

Excess semiconductor inventories are expected to decline to less than $500 million in value by the end of the second quarter, down 21 percent from $630 million at the end of the first quarter, according to preliminary data from iSuppli (El Segundo, Calif.).

The industry has effectively dealt with a surge in surplus chip inventory that swelled to $1.62 billion in the third quarter of 2004, which contributed to a slowdown that started in the second half of last year. Excess inventories declined by 36 percent to $1.03 billion in the fourth quarter of 2004, and by 39 percent to $630 million in the first quarter, according to iSuppli.

"With the inventory correction at distributors complete and with end demand showing some favorable signs, chip suppliers now can focus on reducing inventory to healthier levels," according to iSuppli. "Most suppliers are expected to burn off their surplus inventory by the end of June."

Chip suppliers typically increase their days of inventory (DOI) during the second quarter of a year. However, suppliers are on track to slightly decrease their DOI in the second quarter of this year, allowing the entire supply chain to swing closer to balance and thus marking the conclusion of the inventory correction cycle.

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