Why the Semi Glut Matters

Then Cisco, Motorola and Apple started working through the excess inventories in the channel. And Broadcom warned, saying it underestimated the supply glut in the channel.

All the while, just as Hot Topic had to move those Hello Kitty shirts as quickly as possible to make room for new trends, Broadcom has to move chips through that channel fast because it has new, improved chips to sell to those same customers. So it cuts prices and hopes that volume picks up and that the inventory glut was just a temporary blip.

That's where we are right now. The question is whether the glut will last just a few quarters or if it will get worse. The tone of the most recent semi-company calls has indicated that the glut is still very much problematic. Ironically, I expect that the glut will work itself out in the next couple of quarters -- probably just in time for analysts and Wall Street to extrapolate the glut out into eternity.

That said, it's certainly possible that this glut is already on the ebb. And maybe the market is already looking past it and into the strong future demand.

Regardless, I remain cautious on semiconductor stocks in general. There are exceptions, including two stocks I'm looking to buy before year-end for the burgeoning and still-doubted Microsoft (MSFT Quote) Vista upgrade cycle. I'll tell you what they are tomorrow.

In the meantime, why fight the glut? Sell semis; buy tech.