Beancounters at iSuppli say that the amount of products being stored in the warehouse by chip suppliers are expected to decline by 0.5 percent in the first quarter. While this is bad news for customers, because it means that prices are likely to rise,  it does  provide some hope that market conditions are improving.

The IHS iSuppli Inventory Market Brief report said that because of slow demand and continued excess production, average global semiconductor stockpiles held by chip suppliers rose in the third quarter. Fortunately demand is predicted to rise in the first quarter, drawing down stockpiles to something a little more reasonable. The report said that the end of  2011 proved disappointing from both a revenue as well as earnings standpoint.

Global semiconductor revenue declined by 2.8 percent compared to the fourth quarter of 2010 as customer orders declined. Meanwhile, semiconductor suppliers struggled to balance their factory utilization levels against the drop in demand, leading to the rise in semiconductor inventories, the report said. Semiconductor inventories in the fourth quarter of 2011 were at their highest level since the first quarter of 2001. Excess inventory can represent a challenge for the semiconductor, particularly in times of declining demand, causing prices to decline and resulting in factories reducing their manufacturing.

But semiconductor suppliers are projecting a resumption of demand in the first quarter and global macroeconomic indicators point to a healthier outlook. These factors are raising optimism among semiconductor suppliers that better days are ahead for the industry.