According to preliminary data collected by the market research company VLSI Research Incorporated for September 2009, the inventories being held were equal to only one month of IC billings.

G Dan Hutcheson, CEO of VLSI Research Incorporated, said in a statement that this inventory-to-billing ratio is low when compared to data that goes back to the early 1980s.

It is not surprising, however, to see inventories increase since the semiconductor sector is usually moving into the critical Christmas production ramp in the summer months, according to Hutcheson. The reported shortage of chips, he added, shows that there is not sufficient inventory in the supply chain for the fourth quarter of this fiscal.

In the opinion of Hutcheson, the low-capital expenditures by chipmakers in 2008 had resulted in the production capacity base going down. This had, in turn, given rise to high utilization rates of late, as chipmakers attempted to cope with a turnaround in end-demand, which had in fact started in January 2009.

According to Dan Hutcheson, low inventories and lower capacity together are likely to keep chip prices at higher levels – thus making the year 2010 “a very good year” for the manufacturers of chips.