Electronics Industry Update

-- Semiconductor International, 8/1/2001

Worldwide Sales of Semiconductor Devices	Manufacturers' Shipments of Computers
Manufacturers' Shipments of Semiconductors	Manufacturers' Shipments of Communications Equipment

The total dollar value of worldwide semiconductor sales during the first third of this year was 9.3% below the level for the first four months of 2000. And although lower averages prices continue to contribute to the severity of the market's decline, weakening end-market demand for unit shipments are the primary cause of the industry's recent misfortunes.

Unit sales of chips during January-April 2001 came up 7.3% short of the first-third-2000 total. Lower average prices pulled the market's over-the-year loss in dollar-value terms a couple of percentage points lower.

Between March and April of this year, semiconductor sales plunged in all four broad regions of the world for which the SIA summarizes data. And in all cases the sales level for this April came up at least a bit short of the total recorded during April 2000.

Following are the March-April semiconductor sales trends by major geographic region (with a 34.8% over-the-month decrease in global sales value being the relevant point of comparison):

• The Americas: -46.8%
• Europe: -35.9%
• Japan: -25.5%
• Asia-Pacific (excluding Japan): -28.3%

The dollar value of chip sales to the Americas this April was 39.3% below its April 2000 level, a much steeper contraction than the 24.4% average global over-the-year decrease in sales. Through the first four months of this year, sales to the region trailed the January-April 2000 total by 17.3%.

Sales to Europe during April 2001 fell to a point 20.1% below the April 2000 level. However, January-April 2001 dollar-valued sales to the region were off a comparatively modest 5.3% from their total for the first four months of 2000.

The estimated dollar-value of sales to Japan was 16.3% lower this April than during April 2000. Through four months of 2001, though, dollar sales to the country were still running 1.1% ahead of the pace set during January-April of 2000.

April 2001 chip sales to the (DRAM-heavy) Asia-Pacific market (all nations of the region, excluding Japan) were valued at a level 18.1% below their April 2000 total. Back in January, sales to the region were off almost 24% compared to the same month a year earlier, so the market has stabilized a bit after its steep plunge of late last year. For the first four months of this year combined, chip sales to the region totaled 12.3% less than over the same period during 2000 - a downturn more severe than that experienced by Europe and Japan so far this year, but not quite as bad as the over-the-year loss recorded in sales to the Americas.

Our revised forecasts show total semiconductor sales volume declining by between 10-15% this year. However, we're still expecting for most inventory overhang to be worked through or written off by the beginning of this year's final quarter, leading to gradual market recovery - and about 20% growth - during 2002.

End-Market Demand

Data compiled and published by the U.S. Commerce Department shows that the dollar value of shipments from U.S. manufacturers of computers totaled an estimated $7.12B during April 2001, down 1.1% from the March level. The value of April 2001 shipments was 18.0% below the April 2000 level; as recently as last December, industry shipments were running 38.4% ahead of their year-ago total. The value of computer shipments has now declined in six consecutive months.

The estimated value of computers (inclusive of PCs, servers, laptops, etc.) shipped by U.S. manufacturers last year was $96.2B, an increase of 35.5% over the 1999 total. Between 1998 and 1999, computer shipments had grown by barely 7%, so 2000 was an unambiguously outstanding year for the industry.

New orders to computer equipment manufacturers fell 3.6% between March and April, following decline of a similar 3.3% magnitude the month before. Through the first four months of this year, the value of computer shipments was running 4.0% behind the January-April 2000 total, while new orders to the industry were down 2.6%

Inventory levels in the computer sector rose a surprisingly sharp 3.4% during April, following a net decline during the first quarter of this year. The estimated value of inventory in the computer industry (including all materials/supplies, finished goods, and work still in process) was 16.5% greater this April than during April of 2000.

The value of shipments from U.S. manufacturers of non-defense communications equipment plunged by 9.0% between March and April of this year, and were 24.5% lower this April than during April of 2000. As recently as this past October, industry shipments were still running more than 18% 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 fell 4.7% during April, after plummeting by 20.8% (on a seasonally adjusted basis) between January and February and showing little recovery (+1.2%) in March.

Through the first-third of 2001, the total value of new orders received by non-defense communications equipment manufacturers was worth 25.0% less than during the first four months of 2000. Shipments during the same four-month period were off a less-precipitous 16.2% from a year ago, so there's more room on the "down" side in the months ahead given the steeper drop-off in orders volume.

For 2000 as a whole, the value of non-defense communications equipment shipments rose 19.3% over the final 1999 total. Orders grew at a reasonably healthy rate as well - but with 2000's increase of 14.1% running well behind the gain in shipments, it's no surprise to see shipments growth fading during the first half of 2001. And the orders total through April of this year suggests a deepening of this downward trend for shipments volume in the months ahead.

Business investment in network infrastructure, Internet commerce applications, and mobile communications has fallen sharply in recent months. And economic weakness in much of the rest of the world limits the gains that can be achieved through export expansion.

But the industry's malaise should be mercifully short-lived. Manufacturers have taken steps to get bloated inventories under control - industry inventory levels fell 7.7% in March and dropped another 4.8% during April - and this will put companies in better shape to effectively respond to future demand recovery. We're looking for industry shipments to grow by about 12% next year (still less than two-thirds as strong as the increase between 1999 and 2000), as U.S. business capital spending bounces back gradually, and pulls the rest of the world up with it.