Posted at 6:23 p.m. PST Sunday, Oct. 28, 2001
Glut check for valley
Companies struggle with excess inventory
BY JENNIFER BJORHUS
Mercury News
Midway through The Great Inventory Correction, Silicon Valley's technology giants are still swimming in billions of dollars of surplus inventory.
From assorted high-tech widgets to shrink-wrapped Palm organizers, valley companies are marking it down, hawking it on the Internet, shifting loads around to other corporate locations and scrapping it. But mostly, they're locking it in warehouses around the globe with fingers crossed for a better day.
THE GREAT INVENTORY CORRECTION
A number of Silicon Valley high-tech companies wrote off excess inventory during their 2001 fiscal years. Here are the dollar values they listed for the surplus reported in filings to the Securities and Exchange Commission.
Company Surplus inventory When reported (2001)
Cisco Systems $2.25 billion Qtr ended 4/28
JDS Uniphase $570.4 million Qtr ended 6/30
Palm $268.9 million Qtr ended 6/1
Agilent $170 million 3 qtrs ended 7/31
Redback Networks $130 million 3 qtrs ended 9/30
Xilinx $123 million 2 qtrs ended 3/31 and 9/29
Altera $116.1 million Qtr ended 6/30
Hewlett-Packard $103 million Qtr ended 7/31
Cypress $93.1 million 3 qtrs ended 9/30
Alliance Semiconductor $50 million Qtr ended 3/31
SOURCE: Securities and Exchange Commission
``There's a flood of it everywhere,'' said Greg McClenon, a chip analyst at Hotovec, Pomeranz & Co. in San Francisco.
Signs of the glut abound. Some are obvious to consumers: Palm VIIx handheld computers have been going for $99 at Office Depot and Fry's Electronics.
Less obvious: Liquidators and online exchanges are flooded with bargains for businesses, particularly communications gear. Need some oscilloscopes or calibration kits? Foster City-based DoveBid had some at an online auction of Agilent Technologies products Thursday.
Want a cheap wireless network? New York-based Asset Recovery Corporation is struggling to sell a $60 million package of contraptions -- from routers to cellular phone towers made by such companies as Lucent, Cisco Systems, Hewlett-Packard, Siemens AG -- from an abandoned Lucent build-out in Riyadh, Saudi Arabia.
Dealers are wary of the sale, said Andrew Levinson, Asset Recovery's chief operating officer, since they're ``afraid of getting stuck with it if they buy it.'' Levinson's company is now scouting for potential buyers in African countries such as Nigeria and Somalia.
The staggering amount of surplus inventory valley companies have charged off -- or taken as a loss -- so far this year speaks to the size of the problem. Internet gear-maker Cisco Systems in San Jose charged off $2.25 billion worth of surplus inventory in its third quarter, ended April 28, as demand dried up. At least nine other local companies, also charged off surplus inventory.
So far Cisco has scrapped, sold and found jobs for $572 million worth of the extras, leaving it with $1.68 billion of dead weight in the last quarter reported. The company is due to report earnings next week and won't say whether it has whittled away further at the surplus.
Telecom-related companies like Cisco may be past the worst of the excess inventory levels, but they still have a long way to go since sales have slowed, industry analysts say. For telecom, don't expect normal inventory levels until 2003 or beyond, said Ari Bensinger, Standard & Poor's communications equipment analyst.
Once a company writes off its extra inventory and the internal surplus is off the books, the question is: What to do with it?
Agilent figures it will dump its stash in the garbage. The Palo Alto company wrote down $170 million worth of excess inventory this year after customers canceled $500 million worth of orders in just one quarter.
The problem, said Chief Financial Officer Bob Walker, is that the raw materials the company stocked to make its sophisticated test and measurement equipment were tailor-made and aren't likely to fetch a decent enough price at an auction to make it worth the company's effort.
``We expect, very honestly, that this stuff will be thrown away,'' Walker said.
At JDS Uniphase in San Jose, executives are dealing with mounds of raw materials such as wafers or metal submounts, unwanted finished products such as pump lasers and fiber amplifiers and extra manufacturing equipment -- $570.4 million worth, to be exact. Most of it is warehoused.
Different parts have been posted on the company's internal Web page in hopes that crews in one of the company's 20 locations around the world might need some of it. JDS is working with brokers and distributors trying to find buyers, said Dennis Samaritoni, senior vice president of operations strategy.
Some of it will be scrapped, Samaritoni said, and the company will recover only the money it can get for the trace amounts of silver and gold in the parts.
Palm is sitting on more than $250 million of leftover Palm VIIx, Palm Vx and Palm IIIc handheld computers as well as components such as memory chips and liquid crystal displays that it bulked up on last Christmas. Palm has unexpectedly been able to sell some of the stuff, said spokeswoman Marlene Somsak, and hopes it can move more.
``We're really hoping not to scrap and not to crush,'' Somsak said.
Some valley tech companies have been flocking to major electronics brokers to unload overstocked raw materials and gadgets. ``They just don't want to deal with it any longer,'' said Mark Bollinger, director of business development for Smith & Associates in Houston. ``They just want the best offer.''
With the current glut, that can frequently mean pennies on the dollar, he said. Capacitors -- aspirin-sized gadgets that store and release electricity inside microprocessors for, say, cell phones -- aren't moving at all.
The glut has spawned new business for ICX Electronics, a Web-based component exchange in San Clemente. The Web exchange had been helping tech companies locate components once in short supply. Three months ago, it flipped around and launched its ``inventory redistribution services.'' In a short time, it solicited lists of more than 600 million different consigned components from about 100 tech firms, many of them in Silicon Valley, and is marketing them on its membership-only Web site.
The original value of the chips, resistors and diodes was about $20 million, but ``it's all down from there,'' said ICX President Gary Lotzer.
Some of the small electronics brokers are speculating, Lotzer said, betting on that next inevitable shortage in the technology cycle.
Said Lotzer: ``I call it buying straw hats in the winter.''
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Contact Jennifer Bjorhus at jbjorhus@sjmercury.com or (408) 920-5660. |
