In a word, inventory. Semiconductor inventories in the supply chain rose again in the third quarter, to a 12 percent excess.

OEMs and EMS companies have been slowly ratcheting down their inventories. Today, inventory days at foundries stand at 32 days, lower than the five-year average of 38. EMS firms are at 40, compared with a five-year average of 51, and OEMs are at just under 35, compared with their five-year average of 40.

But semiconductor vendors' and distributors' inventories have moved in the other direction. Semiconductor vendors now hold 74 days of inventory, compared with an historical average of 67 days. Distributors are holding 61 days-lower than their historical average of 66 but up from 54 days at the start of the year.

Imagine the dilemma by envisioning the combined inventory of the semiconductor vendors and distributors as flowing through a giant fire hose. It connects to another hose that holds EMS inventory-and that one is the diameter of a garden hose.

The fourth-quarter numbers will show that semiconductor vendors have seen more softness in growth as distributors have worked to get inventories back into the neighborhood of 55 days. Semiconductor vendors need to lower production to prevent further inventory build, and they must lower average selling prices to clean out excess inventory.

Not all sectors share the inventory pain. Specifically, levels are healthy in the compute, storage and wired communications verticals. Consumer, wireless and automotive are the problem areas.

These three problem verticals share a characteristic: They are driven by personal rather than business or government consumption. So, it is likely that the inventory build is a consequence of slowing demand by consumers for electronic equipment. Not only is consumer spending important in the macroeconomic sense (personal consumption is two-thirds of the GDP), but consumers now make up 53 percent of semiconductor consumption, up from 40 percent in 1993.

So, my research firm's outlook for 2005 has been revised down to 5 percent growth-a reasonable, though optimistic, number.

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