Chip makers are set for a period of intense financial pain, according to IDC. The amount of semi-conductors companies have put in storage has built up quickly in recent months, yet factories continue to churn them out at a furious pace, which can't continue, said Mario Morales, vice president of global semiconductor research at the analyst firm.
A chip glut will likely force companies to slash prices, which could filter down to users. But it could also cause chip makers to rethink their capital spending and research and development plans, with the potential downside of slower innovation.
IDC isn't the only company warning about rising chip inventories. Intel last month warned of a build-up of chips in the PC sector, which caused its earnings to fall and prompted it to warn that a recovery wouldn't be on the cards until the second half of this year. Market researcher iSuppli also warned of rising inventories, but it indicated that chip levels weren't yet at unreasonably high levels.
Morales said rising inventories aren't limited to the PC market, but also include chips used in consumer electronics such as digital music players, and other gadgets.
Chip makers themselves would have to take the brunt of a market correction, since they're holding most of the chips in their own storerooms. Inventories in the IT supply chain are relatively low, as are inventories at customer companies such as Dell and Hewlett-Packard, Morales said.