SAN FRANCISCO – It’s becoming a mantra: Inventory levels at EMS providers are rising. Deutsche Bank yesterday became the latest to make that assessment, issuing a research note that claimed roughly $3 billion of excess inventory in stock at contract manufacturers.

However, the supply chain will rid itself of most of the overages over the next six to 12 months, DB said. Further, it’s the component manufacturers and distributors whom are most at risk to suffer, DB said. “We believe component manufacturers, particularly vendors whose lead-times have meaningfully extended, and distributors will be adversely impacted,” wrote analyst Carter Shoop.

Shoop said that inventory days at contract manufacturers rose about 15% year-over-year, about one-third due to improved demand and the rest classifiable as “excess.” DB pegged the value of the overages at some $3 billion. The firm predicted ODMs and EMS providers would reduce their inventory levels during the second half.

“We believe the build, which is primarily in raw materials, is a result of extending component lead-times, and to a lesser extent ROHS implementation and program transitions. We believe that as component lead-times contract in the third and fourth quarters, inventory days at EMS and ODMs will be worked lower, driving improved returns for EMS and ODMs, but resulting in slower growth for component vendors and distributors,” wrote Shoop.

The data track with separate findings released last week by Circuits Assembly.

Overall, the supply chain is in fairly good shape, DB found. Worldwide, component distribution inventories are near their midpoint. At U.S.-based suppliers, inventory days are up 5% year-over-year but down 15% from their September 2004 peak. Among Asian-based distributors, inventory days have dropped 4% year-over-year. “We believe distributors are building inventory in North America but purging inventory in Europe due to better-than-expected demand,” DB said.

Inventory levels in Asia appear to be in good shape, the firm said.

Notwithstanding Intel, whose stock levels are historically high, among component manufacturers inventories are lower year-over-year and at healthy levels, DB said. Hardware and communications OEMs' inventory days are up 3% and down 10%, respectively, versus a year ago. IT hardware distributors and resellers' inventory days are flat and consumer electronics retailers' inventory days are down 4%.

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