Electronics Industry Update

Staff -- Semiconductor International, 2/1/2002

Worldwide Sales of Semiconductor Devices	Manufacturers’ Shipments of Semiconductors
Historical Data: World Semiconductor Trade Statistics (WSTS) Forecast: 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 10 months of last year was 29.6% below the level recorded over January-October 2000. Unit sales of chips during January-October 2001 came up 19.9% short of the total for the first 10 months of 2000.

The average price received for all types of semiconductors sold last October was 42.4 cents. This was 10.2% less than what was received for chips sold the month before and remained 19.8% below the average price received during October 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 improved (if only slightly) for the first time in the past 14 months during October 2001. Still, average dollar volume last October was at a level 44.1% below its year-ago level; one year earlier, sales on a three-month-average basis were growing at an annualized rate of more than 40%.

Between September and October of last year, semiconductor sales declined in all four broad regions of the world for which the SIA summarizes data. And in all cases the sales level for last October came up well short of the total recorded during October 2000.

Following are the September-October semiconductor sales trends by major geographic region (with the 23.8% over-the-month decrease in global sales value being the relevant point of comparison):

• the Americas: -27.1%
• Europe: -28.7%
• Japan: -17.1%
• Asia-Pacific (excluding Japan): -22.1%

The dollar value of chip sales to the Americas last October was 55.4% below its October 2000 level a much steeper contraction than the 43.1% over-the-year decrease in worldwide sales. Through the first 10 months of 2001, sales to the region trailed the January-October 2000 total by 41.6% (vs. the 29.6% global decline).

Sales to Europe during October 2001 were at a point 42.9% below the October 2000 level. And total January-October 2001 dollar-valued sales to the region were off 26.0% from the total for the first 10 months of 2000.

Japan continued to fare more poorly than the rest of the world during October, after recording much stronger growth than in other regions through the first half of 2001. The estimated dollar-value of sales to Japan was 49.2% lower last October than during October 2000. Through the first 10 months of 2001, dollar sales to the country were running 24.2% behind the pace set during January-October 2000, but the momentum of monthly declines has accelerated in recent months at the same time that other regional markets are showing signs of stability.

October 2001 chip sales to the (DRAM-heavy) Asia-Pacific market (all nations of the region, excluding Japan) were valued at a level 21.9% below their October 2000 total. For the first 10 months of last year combined, the value of chip sales to the Asia-Pacific region totaled 22.9% less than over the same period during 2000. There’s some consolation to be had in the fact that this was an over-the-year loss less severe than that recorded by any other region of the world through 10 months of 2001. But this decline contrasts starkly with the 37.9% increase in semiconductor sales to the region between 1999 and 2000.

We estimate that, when final 2001 global semiconductor sales volume is recorded, we’ll have seen a decline of 30-35% from the 2000 level of sales. However, we’re still expecting most of the considerable inventory overhang to be worked through or written off by the middle of this year, leading to gradual market recovery and some marginal growth of a couple of percentage points 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 $5.29B during October 2001, up 1.8% from the September level. This followed a surprisingly robust 6.7% rise in the value of total industry shipments between August and September and made this the first time during 2001 that we’ve seen back-to-back monthly increases. Nevertheless, the value of October 2001 computer industry shipments was still a disheartening 40.5% below the October 2000 level; as recently as December of 2000, industry shipments were running 38.4% ahead of their year-earlier total.

In addition to the encouraging September and October movement in the shipments trend, the value of new orders being received by U.S. manufacturers showed dramatic improvement during October. New orders to U.S. computer equipment manufacturers soared 31.5% during the month following steep declines of 14.1% in August and 13.0% during September.

Still, the cumulative totals for the first 10 months of last year were anything but inspiring. The value of shipments from U.S. computer manufacturers was running 21.7% behind the January-October 2000 total, while new orders to the industry were off 22.8%. However, the gap between over-the-year trends in orders and shipments has narrowed in recent months and is now very close to parity an encouraging sign that the market has at last bottomed out.

Inventory levels at computer manufacturing firms fell another 0.1% during October, following cumulative declines totaling 7% over the prior three months. And the estimated value of inventory in the computer industry (including all materials/supplies, finished goods, and work still in process) was 14.1% less this October than during October 2000.

This steady draw-down/write-off of excess inventory sets the industry up for a healthy bounce back once business investment spending recovers and consumer spending growth accelerates. This won’t come to pass for several more months, however.

Through the first 10 months of 2001, industry shipments from U.S. manufacturers of non-defense communications equipment totaled just $65.5B. The value of October 2001 shipments was 2.4% lower than during September. And last October’s level was 39.4% below the total for October 2000. All in all, a pretty gruesome picture of an industry in turmoil.

Nevertheless, the latest Commerce Department showed surprising strength on the orders front although we suspect that the good news for the industry will prove to be short-lived. Nothing more than a one-month “blip” in this often-volatile industry sector, probably. Regardless, we can take some temporary comfort in the fact that the value of new orders received by U.S. non-defense communications equipment manufacturers soared by 58.0% between September and October 2001, following a 40% plunge the month before. But the absolute dollar value of orders last October was still an extraordinary 34.8% below the level recorded during October of 2000.

Through the first 10 months of 2001, the total value of new orders received by non-defense communications equipment manufacturers was worth 40.5% less than during January-October 2000. Shipments during the same period of comparison were off a less-precipitous 26.8% but this probably just means that there’s more room on the “down” side in the months ahead given the much steeper drop-off in orders volume.

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

Consequently, manufacturers have taken steps to get bloated inventories under control. Inventory levels in the non-defense communications equipment industry fell 2.5% in July 2001, 3.5% in August, and a whopping 10.7% during September. And the inventory “correction” continued during October of last year, with levels falling another 4.2%. Inventory levels last October were down a sharp 26.4% from the levels measured during October 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 final numbers will show that the value of non-defense communications industry shipments during 2001 fell 27.7% short of 2000’s total of  $110.7B. And, given the lack of any underlying and fundamental momentum (vs. a one month “blip” of improvement) in the industry as we enter the new year, shipments will probably fall about another 5% this year although by the final months of 2002, both shipments and orders should be running well ahead of their depressed levels for the same months of 2001.