Chip inventory held by semiconductor suppliers at the end of last year's third quarter reached "alarmingly high levels," according to information and analytics provider IHS.
"The uncomfortably high level of inventory among semiconductor manufacturers ... is a result of key demand drivers failing to materialize," said IHS analyst Sharon Stiefel in the press release announcing the IHS iSuppli Semiconductor Inventory Insider Market Brief. "Demand for semiconductor devices has typically come from new products that consumers feel compelled to purchase. But going into the holiday season last year, no such new products marshaled enough impetus to overcome consumer fears about lingering economic woes."
Chip sales also slowed with the poor performance of what is traditionally the largest user of semiconductors, the data processing industry, according to the report. Another factor was the decline in sales of laptops and the disappointing performance of the so-called "ultrabook" PCs.
The strongest demand for semiconductors came from smartphones and tablets, according to IHS, both of which have begun taking over the jobs once performed by mobile PCs.
IHS does see the first quarter of 2013 showing semiconductor sales growing in the industrial and automotive electronics sectors, and the other chip markets seeing a rebound in the second and third quarters of the year.
However, any growth is dependent on the global economy. If stable, IHS projects overall semiconductor revenues growing by 4% and 9% in the second and third quarters, respectively. But if demand disappears, oversupply could lead to inventory writedowns.
Fool contributor Dan Radovsky has no position in any stocks mentioned. The Motley Fool recommends Ford. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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