We believed that Cisco's results would further magnify the inventory problems facing their semiconductor suppliers -- and they did. While revenue increased 14 percent from the previous quarter, total inventory increased 59 percent and raw materials increased 335 percent.

We continue to believe this is a second half story, but need to see revenue growth return year-over-year given this is the third-quarter in a row of revenue estimate reductions.

We believe both revenue growth and margins are within the range of guidance given in the third-quarter earnings release and feel comfortable with our estimates for the fourth quarter.

Inventory levels for steel products are now getting high and suppliers are facing falling prices. The indexes have risen much faster than I anticipated and I still think the pace is too fast given the prospects for corporate earnings.

Cisco's inability to reduce its inventory after the October quarter when revenues grew 14 percent quarter over quarter and inventory grew by 59 percent quarter over quarter reaffirms our view that we have not yet seen the worst of the inventory correction for semiconductor suppliers.

The supply situation will likely get worse in the first half, while demand looks sluggish at best, with large inventory levels in the supply chain.