Analyst Chris Whitmore said many technology companies performed below expectations in July and August and "hope for a robust pickup in September is fading quickly." OEMs are dropping inventory levels, he noted, and concern is greatest for EMS companies that build communications gear.

"We continue to believe that the combination of slowing end demand and excess inventory across the supply chain will result in a significant deceleration of production trends across the EMS industry. We are most concerned about EMS vendors with substantial exposure to communications infrastructure."

As evidence, Whitmore cited:

• Wal-Mart's tepid same-store sales increase of 0.5% in August and the company's failure to mention electronics in its list of top-performing products.
• Target, which cited electronics as one of the worst performing products in August.
• Best Buy's August same-store sales increase of 4.3%, below 6.7% last year and Wall Street's forecast of 5.4%.
• 3Com's cutting of its forecast for the August quarter and belief that sales declined 10 to 13% sequentially.
• Cautious announcements by Intel, Fairchild, IDT, Altera and Cypress.

In addition, Whitmore noted warnings from several semiconductor companies of reduced inventory levels at OEMs, which could impact EMS production. DB believes market sentiment "is still too optimistic about EMS fundamentals" over the next six quarters.