Electronics Industry Update

Worldwide Sales of Semiconductor Devices	Production Trends & Forecasts of Computers
Historical Data: World Semiconductor Trade Statistics (WSTS) Forecast: Semiconductor International	Historical Data: Federal Reserve Board Forecast: Semiconductor International
Production Trends & Forecasts of Communications Equipment	Production Trends & Forecasts of Electronic Components
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 11 months of last year was 30.7% below the level recorded over January-November 2000. Unit sales of chips during January-November 2001 came up 20.8% short of the total for the first 11 months of 2000.

Thus, although it’s clear that lower average prices have in fact been an important contributing factor to the market’s decline, weakening end-market demand for unit shipments was responsible for more than two-thirds of the industry’s downturn during 2001.

According to preliminary data released by the Semiconductor Industry Association (SIA), the value of chip sales this past November increased by 2.7% from its October 2001 level — an encouraging development that suggests a “bottom” to this devastatingly deep downturn. However, unit sales fell by another 1.2% over the month after plunging more than 15% between September and October. So all of the November improvement can be attributed to the incipient recovery in average prices.

The average price received for all types of semiconductors sold last November was 44.1 cents. Although this was 4.0% more than the average price received for chips sold the month before, it was 18.2% below the average sales price recorded during November 2000.

Dollar-valued microprocessor sales volume rose 19.3% between October and November of last year, but the value of November 2001 microprocessor sales was still 15.2% lower than during November 2000. Through the first 11 months of 2001, the value of worldwide microprocessor sales fell 26.3% short of the January-November 2000 total.

DRAM sales volume rose by an encouraging 17.0% between October and November, but through the first 11 months of last year total DRAM shipments trailed the year-ago dollar-value total by 61.7%. DRAM sales volume during November 2001 was worth 68.7% less than the volume recorded during November 2000. However it’s clear that this sub-sector is (very) slowly pulling itself out of its deep abyss; during August of last year DRAM sales volume had been more than 81% lower than the total for 12 months earlier, so the November-to-November over the year decline — deep as it is — gives some cause for optimism about future trends in this volatile market.

The dollar value of all discrete and optoelectronic chips sold during November 2001 was down sharply for the second month in a row, after holding up relatively better than either the microprocessor or memory segments of the market through the first half of last year. November sales were off another 5.6% after plunging by 16.0% between September and October. November 2001 shipments were worth only about 52% as much as during the same month of 2000, and continued losses in communications equipment end-market sales will undoubtedly pull this number even lower over the early months of this year. Through the first 11 months of 2001, the value of discrete and optoelectronic chips shipped was 26.8% less than over the first 11 months of 2000.

The average price for all integrated circuit devices sold worldwide rose by 3.2% between October and November of last year, but was 18.5% lower during November 2001 than during the same month of 2000. Average DRAM prices moved slightly higher in November — for only the second time in the past 15 months. The average unit price of a DRAM chip sold during the month was $1.703 — an increase of 1.1% from the October level. Still, DRAM prices during November of last year averaged 73.1% less than in November 2000. During 2000, the average price of a DRAM chip sold was $7.24; even with the anticipation of further improvement during the final month of last year, 2001 prices will average just under $3 per chip.

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 for the second consecutive month in November after 13 straight months of deterioration. Still, average dollar volume this past November was at a level 42% below its year-ago level; one year earlier, sales on a three-month-average basis were growing at an annualized rate of nearly 40%.

End-Market Demand

Estimates from the Federal Reserve Board’s monthly industrial production survey show that computer/peripherals industry output rose for the second month in a row during December. Production increased by a modest 0.7% between November and December, following a 0.5% output gain the month before. So things are finally looking up — although just barely — for a market that’s been on the ropes for the past year. Industry production had fallen during nine of the first 10 months of last year — with a negligible 0.1% “spike” up between May and June being the only exception.

The back-to-back increases in computer industry production activity over the closing months of last year — combined with some marginally better news on the macroeconomic front — suggests that we’re nearer the end than the beginning of the current economic recession. It’s likely that we’ll look back and conclude that U.S. computer/peripherals production “bottomed out” during the fall of 2001.

Preliminary estimates show that cumulative output from SIC 357 during full-year 2001 was just 1.7% greater than during 2000. This follows the gains of 30-35% recorded in both 1999 and 2000. Industry production during the second half of last year was 8.1% below total output achieved over July-December 2000, after growth during the first quarter of 2001 was still running at an annualized rate of better than 20%.

Although it’s likely that we’ll continue to see small month-to-month gains in output throughout most of the first half of this year, computer/peripherals production during the first quarter of 2002 will undoubtedly still come up short of the reasonably healthy total recorded during the first three months of 2001. But growth should gradually accelerate as we move through the year, and there’s a good chance that annualized output gains will be back in low double-digit territory by this time next year.

Output from the nation’s communications equipment industry is estimated to have declined by 3.0% between November and December 2001 — the steepest month-over-month drop recorded since July of last year. The December plunge followed losses totaling 7.4% over the prior three months. Industry production has now fallen in every month since October 2000.

The production index for the U.S. communications equipment industry ended 2001 at a level 25.9% lower than during December 2000. Following output growth of 15.4% in 1999 and 27.5% during 2000, total unit production from U.S. communication equipment manufacturers during full-year 2001 was 10.2% less than the year before.

This industry sector will likely finally hit bottom sometime during the first half of this year. Although actual quarterly production totals for the first two quarters of 2002 will almost certainly still fall well short of the comparable levels for 2001, average monthly losses should be of a smaller magnitude than over the past six months. And we don’t think it’s unrealistic to believe that the industry should finally begin to record some marginal gains in output by the fall of this year.

Consequently, we’re cautiously optimistic that market conditions will finally stabilize by the middle of this year, and that overall industry output during the second half of 2002 will be about 6% higher than over the final six months of 2001. However, this still wouldn’t be nearly enough of a rebound (a classic example of “…too little, too late…” ) to help the industry avoid its second straight year of production declines.