But in today's global economy, managing inventories has become a big headache. At a recent conference sponsored by iSuppli Corp. (El Segundo, Calif.), Matt Sheerin, a securities analyst who tracks electronic manufacturing services (EMS) firms for Thomas Weisel Partners, estimated that the industry is perhaps two quarters away from a return to normal inventories.

Since the largest EMS vendors buy a third or more of all electronic components, stretching out excess inventories to March or June is a major problem for an industry struggling to return to normalcy.

The problem has several facets. The rise of the EMS industry has created a triangle of chip suppliers, EMS companies and system vendors. Many system vendors keep their own pockets of inventory, which duplicate inventories at their EMS partners.

The chip vendors have their own problems, dividing the world into disconnected regions with unconnected IT systems. As a result, semiconductor vendors often cannot shift chips that may be needed in, say, China from a European company that would like to unload excess inventory.

Among the contract manufacturers, the continuing wave of mergers has created a patchwork of inventory management software that compounds the problem.

One might think that the RosettaNet consortium would ride to the rescue. Indeed, Intel and many other large corporations are reducing their transaction costs by developing corporatewide and B2B systems based on RosettaNet.

But standards develop slowly and implementing RosettaNet is expensive. In this severe business climate many companies have put RosettaNet on the back burner. One manager said that while his company is eager to develop a comprehensive IT system, the estimated $500,000 cost of commercial RosettaNet software is too expensive in today's environment.

Also, the cost of shipping goods across borders may increase to meet heightened security standards. That leaves even fewer dollars (or yen) to upgrade business processes.

That is the short-term reality. If one adopts a five-year or decade-long view, it's absolutely essential to move to standards and systems that enable lower inventories and better demand forecasting. If the overall electronics industry learns to use the technology it creates, we can return some sanity to our overly cyclical industry.

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