July 1, 2005

Component prices: Why the softening continues

Author: Melanie Hollands

Some in the media and in the investment community are now saying they believe we are in for an extended period of component price declines -- after six months of expressing confidence that prices would hold up. We have been writing about component over-supply (and, by extension, softening process)
Melanie Hollands

since August last year. The Oct. 7 column commented on the impact that declining demand and excess supply of component prices would have. (Insert stopped clock joke here.)

To revisit that Oct. 7 column for a minute: "… the inventory build is something that most don't want to acknowledge, and which can have a significant ripple effect … For OEMs, it's fairly positive, because they'll keep part of the price reduction and pass on the rest to the customer. When suppliers publicly admit they have inventory, it's always a bonanza for those who buy and use chips. Pricing becomes negotiable versus the previous year or so that parts have been on "allocation." Compounding the risk to the sector is buyers now have an incentive to wait, since prices seem likely to fall even further.

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