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A sign is posted at the Intel company headquarters on July 20, 2011 in Santa Clara, California.

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Fears of shortages in the global technology supply chain are turning into worries about excess inventory as precautionary stockpiling after the Japan earthquake has coincided with waning consumer demand in Europe and the United States.

Far from the doomsday scenarios in the immediate aftermath of the earthquake that there would be shortages - thereby making components pricier and delaying production - the biggest problem now facing global technology manufacturers is how to clear overstocked warehouses.

"Nothing is tight right now [in the PC supply chain]" says Jenny Lai, head of Taiwan research at HSBC.

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"Those components where there was a risk of shortage are now having the biggest problems [in terms of oversupply]"

Global semiconductor inventory levels - a good indicator of the health of the overall technology supply chain because all electronic devices use chips - jumped 10 per cent, from 66 days in the fourth quarter of 2010 to 73 days at the end of the first quarter this year, estimates Credit Suisse . It was the first time since the 2008 global financial crisis that these inventory levels rose above the long-term rolling historical average.

The fact that potential shortages arising from the Japan disaster in March have been so quickly addressed is testament to the flexibility and diversity of the global supply chain. Companies moved quickly to secure alternative sources for key components, and the absence of widespread rolling power cuts in Japan beyond specific quake-affected areas meant further disruptions were avoided.

Unfortunately for manufacturers, the move to ensure sufficient supplies coincided with generally weak consumer spending, particularly in Europe and the U.S., which are still the industry's biggest markets.

Acer, the world's third-biggest PC company by sales, in June wrote off the equivalent of $142.2-million worth of inventory in Europe, where the consumer PC market has been particularly damped by macroeconomic concerns.

Nanya, Taiwan's biggest manufacturer by sales of D-Ram memory chips for PCs, said last week that its inventory levels were now double the normal two to three weeks' worth of stock.

Oversupply concerns also plague the flat panel industry. AU Optronics , the world's third-biggest flat-panel producer by sales, is cutting this year's capital expenditure by a third due to "highly uncertain levels of demand in the third quarter" for televisions and computers. "The most important thing for us to do now is to control our inventory levels," says Paul Peng, executive vice-president at AUO.

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STMicroelectronics , the Franco-Italian semiconductor manufacturer, also said it had been affected by overstocking. "We saw overbooking by some customers in April, as they tried to protect themselves from shortages of certain components. That led to a correction in June," said Carlo Bozotti, chief executive.

US semiconductor suppliers generally show a healthier position - Intel said last week that inventories were at healthy levels, while Qualcomm said levels for CDMA phone chips had declined a little in the last quarter and were heading for the low end of the historical 15-20 week range of supplies.

But Texas Instruments , whose factories were damaged during the Japan earthquake, on Monday said it had purposely increased inventories in its last quarter.

Companies along the supply chain building up stock - both after the financial crisis and the Japan quake - helped drive the growth of semiconductor groups in the past two years. But with inventory levels now approaching historic highs, many chipmakers risk having to take writedowns if demand remains weak in the second half of the year.

"When the supply chain goes from restocking to de-stocking, it slows down growth for a couple of quarters," says Randy Abrams, analyst at Credit Suisse.

Prices of memory chips like D-Ram and Flash spiked briefly after the quake on concerns of short supply, but sluggish PC sales meant that provided little respite in an environment in which D-Ram prices have fallen by 70 per cent since May 2010.

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Unlike in previous years, "no one [among Nanya's customers]is increasing inventory for the 'back to school' sales season," says Pai Pei-lin, Nanya vice-president. "Stocks of key components in the supply chain are just too high right now."

With files from Maija Palmer in London and Chris Nuttall in San Francisco.

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