Electronics Industry Update

-- Semiconductor International, 6/1/2001

Worldwide Sales of Semiconductor Devices	Manufacturers' Shipments of Computers & Peripheral Equipment
Manufacturers' Shipments of Electronic Components	Manufacturers' Shipments of Communications Equipment

The total dollar value of worldwide semiconductor sales rose by only 4.0% between January and February of this year, according to preliminary data released by the Semiconductor Industry Association (SIA). This was well below the increase expected from the gradual ramping up of normal seasonal demand, and shows the market continuing to lose momentum. With chip inventories still higher than underlying product demand, average prices have softened and will continue to hold dollar volume sales growth in check throughout most of 2001. The dollar value of February 2001 semiconductor sales was 3.5% lower than during February of last year.

Through the first two months of 2001, the dollar value of global semiconductor sales was running 3.2% behind last year's pace. Total unit sales so far this year are 2.8% below the total for the first two months of last year, so average prices are running a bit lower so far this year than during early 2000.

Between January and February of this year, semiconductor sales rose in two of the four broad regions of the world for which the SIA summarizes data -- the Americas (+4.1%) and Asia-Pacific (+20.6%).

The dollar value of chip sales to the Americas this February was 6.1% below its February 2000 level, a steeper contraction than the 3.5% average global over-the-year decrease in sales. Through the first two months of this year, sales are trailing the January-February 2000 total by 8.7%.

Sales to Europe during February 2001 fell to a point 3.9% below the February 2000 level. January-February 2001 dollar-value sales were almost holding their own compared to the first two months of 2000, recording a decline of just 0.3%.

The estimated dollar value of sales to Japan was 5.8% better this February than during February 2000. For the 12 months of 2000, chip sales to Japan ended up 42.4% from their 1999 total -- quite a bit better than the worldwide growth pace of 36.8%, and a larger gain than those recorded by the other three quadrants of the globe. And chip sales to Japan continue to shine, relative to trends for the rest of the world. Through two months of 2001, dollar sales to the country were running 8.8% ahead of the pace set during January-February of 2000.

The dollar value of semiconductor sales to the rest of the Asia-Pacific market (all nations of the region, excluding Japan) has been falling sharply in recent months, but made a bit of a comeback during February. February 2001 chip sales to the (DRAM-heavy) Asia-Pacific market were valued at a level 4.7% below their February 2000 total -- not bad, though, in comparison with the 23.4% plunge recorded between January 2000 and January 2001. For the first two months of this year combined, however, chip sales to the region totaled 14.2% less than over the same period during 2000.

End-market demand

Data compiled and published by the U.S. Department of Commerce shows that the value of shipments from U.S. electronic component manufacturers declined by 1.6% during February, following a 3.3% loss between December 2000 and January 2001.

At a level of $17.96B (seasonally adjusted), the value of February 2001 shipments of electronic components was still 13.6% greater than during the same month of 2000. However, this was the weakest over-the-year growth recorded by this sector since December 1999.

Of even greater long-term significance is the fact that the value of new orders received by the industry plunged a steep 22.7% during the first month of the new year. Orders bounced back strongly during February, though, with a 19.3% increase. Still, the longer-term orders trend remains unfavorable for the industry. The value of orders this February was still off 7.8% from where they ended 2000, and total new orders received by component manufacturers through the first two months of 2001 totaled 11.8% less than over January-February 2000.

And semiconductor sales and orders information (available from association, not government, sources) confirms that a slowdown in overall electronic component industry growth is underway, both as the result of weakening global demand and flat to falling average prices.

With demand from end-market consuming electronics sectors (like computers, communications equipment and consumer electronics) slowing, the components industry has begun to feel the full impact of an inventory overhang and falling average prices. Commodity semiconductor chips (particularly memory) have been particularly hard hit, but oversupply problems are plaguing components of just about all sorts.

The dollar value of shipments from U.S. manufacturers of computers and peripheral equipment totaled an estimated $13.37B during February 2001, down a sharp 7.6% from the January level. Industry shipments have now fallen for four consecutive months, and in February 2001 were valued 11.3% less than during October of last year.

The estimated value of computer and peripheral equipment shipments from U.S. manufacturers last year was $170.4B, an increase of 22.7% over the 1999 total. Between 1998 and 1999, SIC 357 shipments had grown by barely 7%, so 2000 was an outstanding year for the industry. But recent trends in orders suggest that 2001's growth won't come close to measuring up to 2000's stellar performance.

New orders to computer/peripheral equipment manufacturers fell 4.3% between January and February. But orders had soared during the first month of the new year, so the value of total new work coming into the pipeline was actually running 6.5% of last year's pace through the first two months of 2001. Still, this is a far cry from the 22.8% increase in total industry orders recorded between 1999 and 2000.

And the burst of the Internet bubble and a slowdown in business investment spending (even for networking and other IT products) by increasingly cautious manufacturers and Internet service providers have begun to dramatically impact the long-high-flying communications equipment industry sector. The last several years have been outstanding ones for the industry; this year and next will be less so.

The value of shipments from U.S. communications equipment manufacturers declined by a slight 0.3% between January and February of 2001. Shipments this February were 7.7% lower than at their peak recorded during September of last year, and only 1.2% higher than the total value of product shipped during February of 2000. As recently as this past October, industry shipments were still running almost 24% ahead of the level for the same month a year earlier.

And new orders to the industry have weakened even more severely. The value of orders received by U.S. communications equipment manufacturers plummeted by 11.4% (on a seasonally adjusted basis) between January and February, following a surprisingly (and, at the time, encouragingly) large gain during the first month of the new year. Through the first two months of 2001, the total value of new orders received by communications equipment manufacturers was worth just 0.8% more than during January-February of 2000.