Semicon industry still in 'caution zone'

MUMBAI, INDIA: The Dataquest Semiconductor Inventory (DASI) Index will continue to fall in the third quarter of 2009, having moved from the "severe excess" level of 1.21 and higher during the past four quarters to just inside the "caution zone" (1.10 to 1.20), according to Analyst firm Gartner, Inc.

However, analysts warned that the DASI Index will not stabilize until at least 2010, when Gartner forecasts the next year of growth for thesemiconductor industry, said a press release.

Gartner employs the DASI Index to provide an aggregate view of the inventory health of the semiconductor industry by assessing normal inventory levels throughout the supply chain and comparing them with current levels to evaluate industry trends. It gauges the normal inventory level at each stage of production that will allow for a smooth flow of products and management of the production process without inventory shortages or surpluses.

The DASI Index includes control zones of "Normal" and "Warning." Above 1.10, inventories are inflated, and there is likely to be downward pressure on average selling prices, the release added. Below 0.95, inventories are low, components may be on allocation and double-ordering begins.

"While some industries are experiencing a fundamental demand-side recovery, other industries are benefiting from a reduction in inventory simply because of their continued conservative efforts in keeping the supply chain lean," said Gerald Van Hoy, senior research analyst at Gartner.

"Concerns of possible shortages in inventory seem to be premature, but inventory should continue to be monitored, especially in large-scale markets, such as PCs and cellular phones," he added.

According to him, "Even though revenue has been showing positive growth, there is not enough of it to overcome the declines we saw at the beginning of 2009, and we do not see indications of this changing before the end of the year. Nevertheless, the industry continues to shed inventory, which has made the current crisis manageable.”

While the economy is in a recovery phase and sensitive to global conditions – such as natural disasters and political events – Gartner said it continues to express cautious optimism for the immediate future and predicts that the market will return to growth in 2010 and 2011.

Van Hoy explained that this cautious optimism is largely due to the fact that there are crucial differences between the present semiconductor supply chain and the one that existed at the last major crisis in 2001 to 2002.