Inventories Backing Up In High-Tech

Average inventory is below 40 days.

In 1991, before the influence of Internet-based supply chain solutions, the electronics industry carried an average of 100 days of inventory. That average has since plummeted to below 40 days; however, according to Merrill Lynch estimates, average inventory days rose by two days -- from 39.7 to 41.7 -- in the first quarter of 2006.

Much of the blame for that rise is due to the semiconductor segment, which saw an increase of 8 days, largely driven by Intel. Merrill Lynch analyst Steven Fox attributes the rise in days to "the channel," e.g., electronic manufacturing services (EMS) and distribution, as well as computing and semiconductor companies.

"We think EMS providers are seeing an excellent environment for new programs contributing to recent inventory trends and that distribution turns still reflect well on the industry's improved supply chain position," Fox observes. "We expect better inventory metrics the seasonally strong months."

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