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Greenberg: Warnings Abound on Chip Inventory Glut

Published: Friday, 30 Jul 2010 | 9:48 AM ET

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By: Herb Greenberg
CNBC Senior Stocks Commentator

History has a way of repeating itself in the semiconductor industry.

Silicon Chip
AP

And it's happening again with bloated chip inventories.

So far this earnings season the I-word has been mentioned by a number of suppliers of communications chips:

PMC Sierra [PMCS Loading... () ] discussed "inventory digestion" in part of its supply channel.

LSI [LSI Loading... () ] said it was seeing "inventory adjustments from several customers."

And NetLogic [NETL Loading... () ] said that it saw "Cisco's [CSCO Loading... () ] contract manufacturers work down some inventory."

Those are just a few examples—and it's not just communications chip makers. As I pointed out in a piece yesterday, Macquarie analyst Shawn Webster put out a report saying that he believes there are "10 to 16 million excess processers out there somewhere."

Herb Greenberg
Senior Stocks
Commentator

Which gets us back to history. Industry analysts I talked with say this is what always happens when their are supply constraints as there were several quarters ago: Customers double and triple order to make sure they get supply.

Maxim Integrated Products [MXIM Loading... () ] CEO Tunc Doluca confirmed that in his company's earnings report when he said, "I'm pretty sure certain some amount of extra ordering that they're doing just to make sure they get their product."

Then there's this week's disaster du jour—Nvidia [NVDA Loading... () ], which two quarters ago said it was leaving revenue on the table because it had more demand outstripped supply. Now the graphics chipmaker is warning business isn't what it used to be as supply outstrips demand.