As predicted earlier in the year, semiconductor vendors have begun to take action to bring production back into line with weak economic sentiment, at the cost of their own sales.
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Back in September, analysts at Gartner said that worldwide chip inventories were worryingly high as a result of a downward trend in IT sales, with its supply chain tracking index, GIISST, revealing the channel held 1.12 days of inventory (DOI).
According to Gartner, anything above 1.10 means inventories are stuffed and there will be downward pressure on average selling prices (ASPs). Anything below 0.95 signals low inventories, and since September the index has risen to 1.16.
However, with many semiconductor vendors announcing weak sales in Q3 and pre-announcing poor guidance for the fourth quarter, analysts now feel confident enough to say that the inventory correction has begun.
"We expect ASPs for foundry-produced components will be under pressure through the first half of 2012 because of aggressive investment in capacity made as the industry came out of the last recession," said principal research analyst Peter Middleton.
"That investment is leading to excess capacity at the same time as concern is rising about end-market demand levels."
Added senior analyst Gerald van Hoy: "The proportion of total semiconductor inventory held by OEMs has begun to rise; however it is still near historic lows, which will help reduce the impact of an order correction on semiconductor vendor sales."