"A bigger gap between supply and demand may be on the way
No one wants to get stuck with excess inventory when the next downturn hits. But because forecasting is more art than science—and often muddled by double booking during upticks—no one really knows when supply and demand will diverge sufficiently to create serious excesses, the kind that can trigger the next industry recession.
Over the years, Advanced Forecasting has prognosticated the turning points in the cycle more accurately than most. In January 2000, for example, it was the only market research firm to alert the industry that a recession would hit in the summer of that year. Unlike other market research firms, which develop consumption forecasts based on surveys of human beings along the supply chain, Advanced Forecasting uses a demand model based entirely on economic factors that influence the consumption of integrated circuits (ICs). The theoretical ideal would be if the two lines were as close as possible, meaning that shipments would match real underlying demand.
Advanced Forecasting recently cranked the numbers to see how semiconductor shipments are tracking with its IC demand model. The results (see graphic above) suggest that underlying demand (red line) trails shipments (blue line), although the two lines nearly touch at the end of January 2004, the last month for which shipment numbers were available. With chip companies adding more capacity, shipments are likely to increase in the coming months. The blue line is likely to rise more steeply, but Advanced Forecasting predicts that the slope of the red line won't change, reflecting a widening of the gap between shipments and underlying demand. When they're too far apart, you end up with excess inventory, which, in turn, triggers a recession.
By late summer, Advanced Forecasting predicts, the consumption line starts to flatten a bit (see arrow on the graphic). If shipments are still rising steeply, there's a greater chance of excess inventory. Historically, according to Advanced Forecasting, the point in an uptick where the underlying demand curve starts to flatten is a high-risk inflection point that can trigger a recession. It all depends on how much more capacity chip companies add between now and then and whether their optimism is fueled by double booking."
reed-electronics.com
See chart at bottom of article, "Inventory Danger Point Later This Year?"
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