Chips Start the Downslide
Analyst Ed Zabitsky of ACI Research has been railing about this for at least a couple of quarters. Part of his thesis is that China's expansion has been a government stimulus plan -- meaning the boom is finite. That seems to be playing out.
On a more basic level, he's been concerned that telecom chip suppliers seem to be doing better than their customers. Talk of shortages is pervasive, too, which usually leads to vendors ordering more chips than they need.
This happens in semiconductors periodically. The resulting tight demand causes customers to order a bit more than they really need, to guarantee supply. When it all stops -- when the supply catches up to the demand -- it stops hard. Systems vendors end up with excess inventory and no reason to order more components.
PMC said yesterday that its third-quarter earnings won't meet expectations. If Zabitsky is right, it's part of a coming wave of disappointing announcements.
"As we have detailed ad nauseum, the semiconductor inventory bubble has just begun to burst," Zabitsky writes in his PMC-Sierra Inc. (Nasdaq: PMCS) analysis published today. "While PC component demand has already begun to correct, telecom-related ICs are still experiencing tight capacity."
— Craig Matsumoto, West Coast Editor, Light Reading