Intel's recent launch of its Core 2 Duo microprocessors seems to have contributed to a big inventory buildup of older Intel microprocessors and chipsets as customers wait for the new chips. According to Rosemary Farrell, analyst at iSuppli, the market research company, there is a massive chip inventory glut of $2bn, and most of it belongs to Intel.

Intel’s excess inventories of these parts carried over from the first quarter. However, the problem worsened in the second quarter when Intel instituted price cuts to clear out lingering inventory in advance of its new product launches. This triggered a price war with rival Advanced Micro Devices Inc. (AMD).

“With more reductions expected from Intel and AMD, customers have been placing smaller, more-frequent orders than normal in order to delay volume buys until they can get the best pricing,” Farrell said. “Because of this, inventory will remain in Intel and AMD’s hands for a longer period than usual.”

For Intel, this means additional weight is being added to its already-bloated stockpiles. Inventory is expected to begin to decline in the third quarter as sales of its new microprocessors and chipsets take off. However, the company’s surplus will linger into 2007, iSuppli predicts.

Many PC customers are likely waiting for computers with the Core microprocessors, offering higher performance and less power consumption. The back-to-school season should be interesting to watch. Everytime chip prices fall, it always boosts markets because computing devices become more affordable. This is how the digital divide will be chipped away.