Gartner Says Current Chip Inventory is Way Too High

"The semiconductor industry entered the third quarter of 2011 with moderately high levels of inventory," said Gerald Van Hoy, senior research analyst at Gartner. "Current levels are too high given the weakening economic sentiment, and the industry must rein in production growth and take action to reduce accumulated inventory. We expect that these actions will occur during the next few quarters with production and sell-through expected to return roughly to balance by the second quarter of 2012."

Gartner said that the inventory correction is likely to begin in late 2011 and coincide with an already volatile economic environment in which average selling prices of semiconductors a "tracking" below trend levels.

"Excess inventory levels helped buffer the impact of the Japanese earthquake; however, now action should be taken to rationalize stock levels in the face of macroeconomic weakness," said Gartner analyst Peter Middleton.

According to Gartner, the industry will see "a moderate inventory correction during the next few quarters," which will drive overall semiconductor demand lower. On the positive side, the semiconductor inventory held by OEMs is still near historic lows and may buffer the decline in chip demand..