When Xilinx Inc. began to see demand for its semiconductors dry up in the spring of 2001, Kris Chellam knew one thing: He could have seen this one coming. "The telecom and networking companies that buy our programmable logic systems over-forecasted their demand and overbuilt their inventories," says Chellam, the CFO of the San Jose, Calif.-based semiconductor company. "When demand didn't live up to their forecasts, our orders slacked off materially.

But had we looked at their growth rates relative to the growth rates we were expecting, we would have noticed the mismatch. Instead, we got caught up in the tech bubble and didn't see the warning signs."

The cost: Xilinx's revenues, which ballooned from $600 million in fiscal 2000 to $1.6 billion in fiscal 2001, shrank back to under $1 billion in fiscal 2002. Inventory backlog, which typically ran 150 days for Xilinx, shot up to 250 days. The charge on inventory in calendar 2001: $120 million.