Global inventories held by semiconductor suppliers rose to their highest level in two and a half years during the fourth quarter of 2010.
However, IHS iSuppli has warned that this could spell trouble if chip industry growth loses steam this year.
It said that semiconductor suppliers had 83.6 days of inventory (DOI) at the end of the fourth quarter of 2010. This was up 5.5 days, or seven percent, from 78.1 days in the previous quarter.
And inventory was also booming, hitting its highest level since 2008 when DOI stood at 84 days.
“Inventory levels arguably now are high by any standard, illustrating the difficulty of controlling chip stockpiles even with semiconductor suppliers’ arduous efforts to keep them in check,” said Sharon Stiefel, analyst, semiconductor market intelligence, at IHS.
“The sharp increase of semiconductor inventory during the fourth quarter defied expectations of a decline for the period. This inflated level of inventory could become a concern if semiconductor industry growth falls short of expectations in 2011.”
However the growth came as a shock to the analyst company, which had predicted that the inventories would decrease by 2.5 DOI at this time. It warned that in order to stay afloat semiconductor companies had to aim for a revenue growth of 5.6 percent in 2011.
However, if the growth was lower, the high inventories could cause oversupply in the market, causing chip prices to decline faster than normal, it warned.