Electronics Industry Update

Staff -- Semiconductor International, 11/1/2001

Worldwide Sales of Semiconductor Devices	Production Trends & Forecasts of Electronic Components
Historical Data: World Semiconductor Trade Statistics (WSTS) Forecasts: Semiconductor International	Historical Data: Federal Reserve Board Forecast: Semiconductor International
Production Trends & Forecasts of Computers & Peripheral Equipment	Production Trends & Forecasts of Communications Equipment
Historical Data: Federal Reserve Board Forecast: Semiconductor International	Historical Data: Federal Reserve Board Forecast: Semiconductor International

Semiconductors

The total dollar value of worldwide semiconductor sales during the first seven months of this year was 22.3% below the level recorded over January-July 2000. And, although lower average prices continue to contribute to the market’s decline, weakening end-market demand for unit shipments is responsible for about 70% of the industry’s recent misfortunes.

Unit sales of chips during January-July 2001 came up 15.4% short of the total for the first seven months of last year. And lower average prices into the second half of this year pulled the market’s over-the-year loss in dollar-value terms about another seven percentage points lower.

According to preliminary data released by the Semiconductor Industry Association, the value of chip sales this July decreased by 33.9% from its June 2001 level. Unit sales fell a less precipitous 20.4% over the month.

It’s clear from a number of reports (both anecdotal/subjective and those based on more objective official government surveys) that chip inventories are still much higher today than underlying product demand can be expected to absorb in any sort of reasonable time frame. In addition, average prices have softened over the past nine months and will continue to hold dollar volume sales levels in check throughout most of 2001. The average price received for all types of semiconductors sold this July was 40.9 cents. This was 17% lower than the month before and 22.4% below the average price received during July 2000.

Dollar-valued microprocessor sales volume plunged 50.5% between June and July, and the value of July 2001 MPU sales was 36.0% lower than during July 2000. Through the first seven months of this year, the value of worldwide microprocessor sales fell 26.4% short of the January-July 2000 level.

DRAM sales volume fell by 29.8% over the latest month, and through the first seven months of this year total DRAM shipments trailed the year-ago dollar-value total by 53.0%. DRAM sales volume during the first month of this year’s third quarter was less than 22% the volume recorded during July of 2000.

The dollar value of all discrete and optoelectronic chips sold through July of 2001 held up relatively better than either the microprocessor or memory segments of the market, recording a loss of a moderate 15.2% over the year. However, July 2001 shipments were only worth about 62% as much as during the same month of 2000.

The average price for all integrated circuit devices sold worldwide fell by 18.6% between June and July of this year, and was 24.5% lower during July 2001 than during the same month of last year. Average DRAM prices continued their steep decline during July. The average unit price of a DRAM chip sold during the month was $1.88 — a decline of 24.6% from June. DRAM prices during July of this year averaged 78.0% less than in July of 2000.

On a three-month-moving-total basis — the preferred method of analysis for many, since it smoothes out erratic intra-quarter sales volume — the sales trend for semiconductors deteriorated for the 11th consecutive month during July. Average dollar volume this July dropped to a level 37.2% below its year-ago level; as recently as last August sales on a three-month-average basis were growing at an annualized rate of more than 50%.

End-Market Demand

Estimates from the Federal Reserve Board’s monthly industrial production survey show that computer/peripherals industry output declined for the eighth consecutive month during August 2001. Production fell 0.5% between July and August — its smallest drop during the most recent five months, for those looking for a ray of sunshine in this glum news.

Estimates for 2000 showed industry output rising a stellar 43.8% above the 1999 total — but August 2001 production was reported at a level 2.1% below the output total for August of last year. This was the first time since August 1991 — a full 10 years ago — that computers/peripheral equipment output in a given month came in lower than the production level during the same month one year earlier.

Through the first eight months of 2001, industry output still reached a cumulative total that was 13.4% greater than over January-August 2000 — but gains have been rapidly eroding in recent months. August 2001 computer/peripherals industry production was 7.7% lower than December 2000 output.

Given the discouraging recent trends, it looks like we will see the computer/peripherals industry expand output by only about 11% during 2001, despite the more than 13% gain through the first two-thirds of this year. Output growth should begin to bounce back — slowly, but surely — during the waning weeks of 2001 and ultimately bring full-year 2002 industry production about 18% above this year’s disappointing level.

Output from the nation’s communications equipment industry is estimated to have declined by 1.5% between July and August of 2001. This followed production losses that totaled more than 12% over the prior six months, and brought industry output down to its lowest level since June of last year.

Overall communications equipment production through August 2001 was 11.5% higher than during the first two-thirds of 2000. But this August’s output total was 5.6% lower than in August 2000 — the first time since the final two months of 1991 that two consecutive months of unit production from U.S. communications equipment manufacturers have fallen below the production level of one year earlier. During the final month of 2000 output from SIC 366 manufacturers was expanding at a 35.5% annual rate, so the industry’s decline has been sharp and swift.

Overall industry output during the past full year was 24.3% greater than the 1999 total, and growth totaled 13.0% more in 1999 than in 1998. We’re unlikely to be within shouting distance of double-digit numbers like these again until 2003, at the earliest.

Nevertheless, momentum — and still healthy, if shrinking, order backlog from abroad — should allow the industry to post a production gain of about 5% this year. But production gains during 2002-2003 should be in only the 2%-5% range as the late ‘90s momentum is completely dissipated. Consequently, it’s likely that the industry will plateau for a couple years at a level of growth substantially lower than the annual average recorded during the latter half of the 1990s.