Electronics Industry Update

Staff -- Semiconductor International, 12/1/2001

Worldwide Sales of Semiconductor Devices	Manufacturers’ Shipments of Semiconductors
Historical Data: World Semiconductor Trade Statistics (WSTS) Forecasts: Semiconductor International	Historical Data: U.S. Department of Commerce Forecast: Semiconductor International
Manufacturers’ Shipments of Computers	Manufacturers’ Shipments of Communications Equipment
Historical Data: U.S. Department of Commerce Forecast: Semiconductor International	Historical Data: U.S. Department of Commerce Forecast: Semiconductor International

Semiconductors

The total dollar value of worldwide semiconductor sales during the first eight months of this year was 25.9% below the level recorded over January-August 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-August came up 17.7% short of the total for the first two-thirds of last year. And lower average prices into the second half of this year pulled the markets’ over-the-year loss in dollar-value terms about another eight percentage points lower.

The dollar value of chip sales to the North/South American region this August was 60.1% below its August 2000 level — a much steeper contraction than the 48.1% over-the-year decrease in worldwide sales. Through the first two-thirds of this year, sales to the region trailed the January-August 2000 total by 37.4% (vs. the 25.9% global decline).

Sales to Europe during August fell to 50.3% below the August 2000 level. And total January-August dollar-valued sales to the region were off 22.3% from the total for the first two-thirds of 2000.

The estimated dollar value of sales to Japan was 45.5% lower this August than during August 2000. Through the first two-thirds of 2001, dollar sales to the country were running a comparatively moderate 17.2% behind the pace set during January-August 2000 — but they have been fading fast in recent months.

August chip sales to the (DRAM-heavy) Asia-Pacific market (all nations of the region, excluding Japan) were valued at a level 33.6% below their August 2000 total. For the first eight months of this year combined, the value of chip sales to the Asia-Pacific region totaled 22.3% less than over the same period in 2000. There’s some consolation that, while this was an over-the-year loss more severe than that experienced by Japan so far this year, it was not nearly as bad as the over-the-year drop recorded in sales to the Americas, and is on par with the decline in chip sales to the European marketplace.

Our revised forecasts show total global semiconductor sales volume declining 25-30% this year. However, we’re still expecting for most inventory overhang to be worked through or written off by the beginning of next year, leading to gradual market recovery — and about 10-15% 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 $4.91B during August, down 19.1% from the July level. The value of August computer industry shipments was 40.5% below the August 2000 level; as recently as last December, industry shipments were running 38.4% ahead of their year-earlier total.

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. But computer industry shipments through the first two-thirds of 2001 were worth only $50.7B.

New orders to U.S. computer equipment manufacturers fell 13.1% between July and August, following a cumulative decline of almost 24% over the previous four months. Through the first eight months of this year, the value of computer shipments from U.S. companies was running 16.7% behind the January-August 2000 total, while new orders to the industry were down 17.7%.

Inventory levels at computer manufacturing firms fell another 2.1% during August, and the estimated value of inventory in the computer industry (including all materials/supplies, finished goods, and work still in process) was 10.3% less this August than during August of 2000.

The steady draw-down/write-off of excess inventory sets the industry up for a healthy bounceback once business investment spending recovers and consumer spending growth accelerates. However, this clearly won’t come to pass for several more months. Consequently, although we think that computer industry shipments will grow by about 10% during 2002, we’re forecasting a decline of about 18% this year.

And as bad as conditions are in the computer/peripherals industry sector, that state of affairs is even bleaker on the communications side of the information technology market. The value of non-defense communications equipment shipped during 2001 is likely to fall at least 25% short of last year’s $110.7B total. Through the first two-thirds of 2001, industry shipments totaled just $53.3B. And the value of communications equipment shipments this August was a disheartening 31.3% lower than during August 2000. As recently as the fall of 2000, industry shipments were still running almost 20% ahead of the level for the same month a year earlier.

And new orders to the industry have weakened even more severely during the past 12 months, with the August level coming in 38.5% below the total for August 2000. Through the first eight months of 2001, the total value of new orders received by non-defense communications equipment manufacturers was worth 36.8% less than during January-August 2000. Shipments during the same period of comparison were off a less-precipitous 23% — which means that there’s more room on the “down” side in the months ahead given the much steeper drop-off in orders volume.

In response to worsening market conditions, manufacturers of non-defense communications equipment have taken steps to get bloated inventories under control. Industry inventory levels fell 4.8% during April, 0.4% in May, 1.4% in June, 1.5% in July, and by another 3.9% during August. Inventory levels this August were down a sharp 20.2% from the levels measured during August 2000. This drawing-down/writing-off of inventories will put companies in much better shape to aggressively respond to future demand recovery.

But this recovery will most likely be very slow in developing. Thus, our best guess is that the value of non-defense communications industry shipments will decline by about 25% this year, and by about another 4% next year — although by the final months of 2002, both shipments and orders should be running well ahead of their levels for the same months this year.