EL SEGUNDO, CA -- Global semiconductor inventories in the second quarter dwindled to lean but appropriate levels, a leading research firm says.

The trend is the culmination of three quarters worth of significant inventory reductions, said iSuppli, which added that the risk of underproducing demand in the third quarter is now higher than that of excess capacity.

Third-quarter chip sales are likely to rise by 3% more than actual demand would dictate, as suppliers have moved to build inventory to achieve a supply and demand equilibrium, iSuppli said.

In the second quarter, days-of-inventory at semiconductor suppliers fell short of optimal levels by 6.1%, a "vast improvement" over the fourth quarter, when DOI exceeded equilibrium by 14.8%. "Having seen their inventories swell to excess in 2008, semiconductor suppliers acted quickly to reduce inventory," said Carlo Ciriello, financial analyst for iSuppli. "However the pendulum swung too far in the opposite direction in the second quarter, leaving inventories at lean levels."

Still, the firm downplays the risk of shortages, saying factory utilization is at extremely low levels. Nevertheless, the pendulum could swing hard the other direction, leaving chipmakers in the lurch. "The inventory restocking effort will run its course by the end of the third quarter, leaving sales to be driven only by actual end-market demand," Ciriello said. "This will bring an end to the artificial boost in sales and sentiment generated by the inventory rebuilding effort."

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