Chip inventory held by semiconductor suppliers reached alarmingly high levels in the third quarter of 2012 amid weak market conditions.

Overall semiconductor revenues declined by 0.7% sequentially during the fourth quarter of 2012, said IHS. The poor results came after inventory reached exceedingly high levels by the end of the third quarter, amounting to 49.3% of total semiconductor revenues - more elevated than at any point since the first quarter of 2006.

Chip stockpiles among semiconductor suppliers had actually gone down during the final two quarters of 2011, showing a promising drawdown, IHS observed. But then inventories steadily ticked up again after that, reaching 47.5% of total revenues in the second quarter of 2012 before hitting the current peak in the third.

"The uncomfortably high level of inventory among semiconductor manufacturers of nearly all stripes is a result of key demand drivers failing to materialize," said Sharon Stiefel, analyst for semiconductor market intelligence at IHS. "Demand for semiconductor devices has typically come from new products that consumers feel compelled to purchase. But going into the holiday season last year, no such new products marshaled enough impetus to overcome consumer fears about lingering economic woes. Two months prior to Christmas, consumer purchases of electronics had grown by only 0.7%, the worst performance since 2008."

Also contributing to depressed conditions was the poor performance of the industry's data processing segment, traditionally the largest user of semiconductors, IHS said. In fact, mobile PCs were projected to decline in 2012 when final figures are tallied, toppled from dominance by tablets. Ultrabooks and other ultrathin PCs, meanwhile, did not produce the demand for semiconductors originally expected as the year progressed.

Despite the collective rise in inventory stockpiles, some semiconductor segments performed better than others, IHS indicated. For instance, with feature-rich smartphones and tablets taking the place of traditional PCs among consumers and eroding PC market share, the devices were anticipated to provide the strongest demand in the final quarter of 2012. As a result, semiconductor revenues for the wireless segment was expected to climb almost 4%. Semiconductor sectors benefiting from the tremendous growth of handsets and tablets included logic, analog and NAND flash memory, with those semiconductor channels refilling following strong shipments even into the beginning of 2013.

The first quarter of 2013 likely will see growth in the industrial and automotive electronics segments, IHS noted. Other semiconductor markets, for their part, will overcome the seasonal decline normally expected at this time of year and then start to rebound around the second and third quarters. Such assumptions, however, rest on the even larger factor of the global economy, currently a volatile variable itself with no set outcome. If global economic forecasts perform according to positive expectations, semiconductor revenue could grow by 4% in the second quarter and by a very solid 9% in the third. However, if demand evaporates, semiconductor suppliers will find themselves in a deplorable oversupply situation, which would then lead to inventory write-downs throughout the year.

The inventory level being measured refers to chip stockpiles specifically in the hands of semiconductor suppliers, not to inventory throughout the electronics supply chain. Chip level at the supplier level is then compared against combined revenues from a sample of 75 semiconductor supplier companies excluding memory, which is tracked separately because of that market's typical late results. A low inventory-to-revenue ratio is preferable, given that higher levels indicate not only unsold stockpiles but also unrealized revenue tied up with the stagnant inventory.