Most chipmakers cut inventories in Q2 - iSuppli

Most major chipmakers have scaled back their inventory levels in the face of slumping demand, putting them in a strong competitive position but driving chip costs up, according to iSuppli.

Of the 15 chip vendors that have reported their Q2 results, 11 have cut their chip inventory, iSuppli said. And eight of these have cut their levels by a double-digit percentage.

Qualcomm and AMD have reduced their supplies by 25% compared to their three-year averages, while Intel has cut its inventory by 19%. And these market leaders have indicated that they do not plan to increase their supplies in the near future, iSuppli said.

“Inventory levels are lean - but appropriate, given current revenue levels,” iSuppli financial analyst Carlo Ciriello said. “With fab utilization so low, semiconductor suppliers can ramp up production to build inventories to meet increased demand, should it be necessary.”

Chip demand is expected to peak in Q3 and begin a decline in the fourth quarter, Ciriello said.

The low supplies are likely to keep the costs of chips relatively high, iSuppli said.

“Semiconductor suppliers have scaled back their capacity significantly during the downturn. This means supplies are somewhat tight, preventing prices from declining as much as expected,” iSuppli VP of pricing analysis Eric Pratt said.