Excess chip inventory keeps growing

By William Trent, CFA of Stock Market Beat

Excess chip inventory keeps growing, says iSuppli

Surplus semiconductor inventories in the global electronics supply chain rose again in the fourth quarter of 2006, meaning that excess stockpiles are likely to linger through 2007, iSuppli predicts.Total excess chip inventory swelled to US$4.3 billion in the fourth quarter, up 4.9% from US$4.1 billion at the end of the third quarter, according to a preliminary estimate from iSuppli.

“The 4.9% increase in excess semiconductor stockpiles conforms to iSuppli’s forecast, and does not mark a significant worsening of the surplus inventory situation,” said Rosemary Farrell, analyst with iSuppli. “While rising levels of excess inventory are a concern for the global semiconductor industry in 2007, they are not sufficient to derail market growth.”

The problem with that forecast is that it doesn’t take into account the excess capacity still coming on line.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Intuit (INTU) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options

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