When the semiconductor industry began its rapid revenue deterioration in the fourth quarter of 2000, many industry pundits cited excess inventory as the cause of all the trouble. Indeed, at least on the surface, the evidence was there. That quarter, semiconductor inventory in the supply chain moved from 15 percent excess to 46 percent excess. It later became clear, however, that the cause of the semiconductor industry's troubles was a collapse in end demand, particularly in the enterprise sector.

The ballooning of semiconductor inventory was not the cause of the 2001 downturn, but rather the effect of a shift in demand. What can be said about inventory is that the more of it that exists in the supply chain, the more severe the near-term pain will be when there are unforeseen changes in supply or demand.

Now history is repeating itself. For the last several quarters, semiconductor revenue has been growing at a healthy clip. In an expanding sales environment, it is normal for inventories to grow and that is just what they did, moving from 1 percent excess at the end of 2003 to 11 percent excess at the end of the second quarter of 2004.

Though folks were a bit concerned about the growing inventories, the "you know what" did not hit the fan until early September, when more than 15 semiconduc-tor vendors revised their third-quarter revenue guidance downward. Nearly all of them blamed the weakness on the fact that their customers are pausing to burn off excess inventory. Only a few cited weakness in end demand and those that did believed the correction would only last a quarter.

Being ever mindful of history, I'm not so quick to blame inventory for what is going on right now. Rather, when I aggregate all the preannouncements, I see weakness in consumer purchases of personal computers, flat-panel displays, DVD players and digital still cameras. And there are signs of a cell phone inventory glut in China.

The evidence is that consumer purchases are not meeting expectations and the inventory build is the delivery mechanism for that information. Capacity utilization, which is presently hovering at close to 95 percent, is strikingly similar to levels seen back in 2000. Our ability to achieve a soft landing this time will depend on the industry's aptitude for moderating near-term capacity growth plans.

Jeremey Donovan (jeremey.donovan@gartner.com) is chief analyst at Gartner Dataquest.