October 7, 2011 - Another warning about semiconductor inventories, this time expressing concern about "unusually elevated" levels rising to a point similar to just before the beginning of the 2008 downturn.

Now, IHS iSuppli says global semiconductor suppliers rose to "an unusually elevated" 83.4 days-of-inventory, "a fairly large jump" from the 79.9 DOI in 1Q11 and the first above-80 DOI in three years. That's 11% above the historical seasonal average, and close to the 11.1% oversupply seen in 1Q08 -- right before the industry started its two-year slide, the firm says.

Two weeks ago Gartner issued a similar red-flag about chip inventories rising to a "caution level" indicating inflated levels and downward pressure on ASPs.

"Wading into such potentially troubling territory—reminiscent of the dark days leading into the recession—could herald the beginning of a critical inventory adjustment period," notes Sharon Stiefel, semiconductor analyst at IHS, in a statement. Look for a "prolonged reduction" in inventories over the next few quarters to mid-2012, as supplies work hard "to avoid dangerous oversupply situations." Analog suppliers, for example, "are being extra-cautious" with their inventory writedowns -- their DOI is even higher at 92.5 days.

The warnings about inventory levels go hand-in-hand with industrywide reductions in semiconductor sales outlooks, now generally seen at ~2% or maybe worse for 2011. That's down from initial expectations of 5%-6% by most industry watchers (iSuppli's previous downgrade was to 4.6% in August).

Many industry suppliers have been softening their 3Q11 projections, illustrating continued poor visibility and slow end demand amidst a persistently soft global economy. (For its part, iSuppli foresees 4.8% growth in 3Q11, boosted by data processing and wireless markets.) Suppliers are not only expected to trim their DOI to 81.3 days (about -2%), but they're also reigning in capacity utilization to reflect soft demand, while keeping production capacity flexible, iSuppli notes.



Global semiconductor days-of-inventory held by chip suppliers. (Source: iSuppli)