According to iSuppli, after a significant reduction in inflated inventory in 2009, global semiconductor suppliers are expected to maintain low inventory levels in the first quarter of 2010, in the hope of benefiting from an uncertain economic environment.

The inventory days (DOI) of semiconductor suppliers are expected to decrease to 68.3 in the first quarter, lower than 68.5 in the fourth quarter of 2009. Due to the fact that the DOI in the fourth quarter was already 2.9% lower than the historical average, the inventory in the first quarter is expected to be 6.9% lower than this standard. The inventory in the first quarter will be maintained at a balance level that can meet the requirements, and the inventory will reach a very low level - even with several specific equipment approaching the edge of shortage.

The following figure shows iSuppli's quarterly evaluation and DOI forecast for global semiconductor suppliers.

Although the semiconductor industry was very sluggish in 2009, chip suppliers managed their inventory proficiently from the end of the fourth quarter of 2008 to the end of the third quarter of 2009, "DOI decreased by 18.2%," said Carlo Ciriello, an analyst at iSuppli. "As inventory has fallen to equilibrium, it is estimated that these companies will continue to proficiently manage their inventory levels.". The key for semiconductor suppliers in 2010 is to seize revenue opportunities and avoid double booking or excessive inventory. Often, suppliers who successfully manage delivery times and understand requirements will gain increased revenue and expand their market share.

Christmas inventory increase

Although the inventory level at the end of the fourth quarter was lower than the historical average, the DOI of semiconductor suppliers actually increased slightly during this period, up 2.7% from 66.7 in the third quarter.

"Most semiconductor suppliers replenished their inventory again in the fourth quarter," Ciriello said. "However, these were only mild replenishments - iSuppli did not see any signs of inventory jumping back to 2008 inflation levels. The increase in inventory was to ensure sufficient product supply during the high demand period in the fourth quarter, which was stimulated by the Christmas sales peak season.".

Reached equilibrium in 2010

The DOI for the entire year 2010 is expected to stabilize at a level close to 70 days. Semiconductor suppliers plan to maintain a balance of inventory demand for all four quarters of this year.

On the basis of the US dollar, inventory is expected to increase moderately in the second, third, and fourth quarters. However, this growth will be more cautious as suppliers strive to maintain stable delivery times and shift upward pressure towards average selling prices (ASP) and profits.

This sustained and tight inventory management will help the semiconductor industry achieve double-digit percentage growth in 2010. ISuppli predicts that after a 12.4% decline in 2009, global semiconductor revenue will rise by 15.4% in 2010.

Is the NAND shortage looming?

Although there will not be a general shortage, it is expected that the supply of NAND flash memory may be limited in 2010. However, this shortfall is expected to be mainly driven by strong demand.

"If Apple approaches its predicted operating speed, there will definitely be a shortage of NAND flash memory in 2010," Ciriello said.