Electronics Industry Update

Worldwide Sales of Semiconductor Devices	Manufacturers’ Shipments of Semiconductors
Historical Data: World Semiconductor Trade Statistics (WSTS) Forecast: Semiconductor International	Historical Data: Federal Reserve Board 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

According to preliminary data released by the Semiconductor Industry Association (SIA), the value of worldwide chip sales increased by 3.1% between March and April to a level of $11.07B. This represented the second straight month of improvement following three consecutive months of no net gain in chip sales, so the sustained March/April increase was an encouraging sign that the market isn’t just bottoming out -- it’s actually in the early stages of a (mild) recovery.

But the over-the-year trend remains uninspiring -- although it has grown marginally less so during the past six months. April 2002 global chip sales were still estimated to be worth 19.4% less than during the same month of 2001. Not that things haven’t improved in recent months: This past September, worldwide chip sales were trailing the year-earlier total by 44.4%, so the April 2002 vs. April 2001 comparison shows some dramatic improvement over the dismal late-2001 state of the industry. But the still-considerable distress of the sector is apparent when semiconductor sales are viewed in a broader historical perspective: At the end of 2000, sales on a three-month-average basis were still growing at an annualized rate of almost 22%, but during Q1/2002 sales were declining at a 33.9% annualized rate.

Between March and April of this year, semiconductor sales values rose in all four broad regions of the world for which the SIA summarizes data. But in three of the four regions, sales levels this April came up short of the April 2001 total -- although the Asia-Pacific region was unambiguously on the comeback trail.

Following are the March-to-April semiconductor sales trends by major geographic region (with the 3.1% increase over-the-month average trend in global sales value being the relevant point of comparison):

• The Americas: +0.4%
• Europe: +0.9%
• Japan: +4.3%
• Asia-Pacific (excluding Japan): +5.6%

The dollar value of chip sales to the Americas this April was 30.3% below its April 2001 level -- a much steeper contraction than the 19.4% over-the-year decrease in worldwide sales. Sales to Europe during April 2002 were valued at a level still 26.0% below the April 2001 total.

After recording much stronger growth than in other parts of the world through the first half of 2001, Japan saw chip sales to the country plunge during the final months of last year even as the market began to bottom out throughout the rest of the world. But this steep decline has moderated during the first third of 2002. The estimated dollar value of sales to Japan was 34.5% lower this April than during April 2001 -- worse than the global-average trend, but not nearly as bad as during the final months of 2001 or the first couple months of this year.

But April 2002 chip sales to the Asia-Pacific market (all nations of the region, save Japan) were valued at a level 12.2% above their April 2001 total. So the semiconductor market in Taiwan, South Korea, Singapore, and other (non-Japan) nations in the Asia-Pacific region is already into the early stages of its recovery.

The April report from the SIA on the health of the semiconductor industry was, on balance, encouraging. Global sales have now increased for two months in a row after three straight months of no growth -- and many more months before that of absolute decline. At the same time, there still wasn’t much in the April report to suggest that the industry will gain any considerable momentum in the months immediately ahead. Prices have stopped falling -- and, in the case of DRAM chips, actually started rising significantly above the cyclical lows -- but worldwide demand on a unit basis remains discouragingly weak.

Encouragingly, 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. For 2002 as a whole, global chip sales are likely to be little changed from the 2001 total -- up or down a few percentage points, depending on how quickly average prices recover. But during 2003 we’re expecting to see solid growth in the market on the order of 25-30% -- although this solid recovery would still leave 2003’s dollar value of semiconductor chip sales about 10% below the robust $204.4B level achieved during 2000.

(NOTE: This trend analysis of SIA sales figures is based upon a three-month-moving-total view of the data -- widely considered to be the most accurate and meaningful way to look at the information, because it smoothes out the always-erratic movements in intra-quarter sales volume.)

Data compiled and published by the U.S. Commerce Department shows that shipments of electronic components (excluding semiconductors) rose by 2.1% between March and April, following a loss of 1.7% between February and March. The value of April 2002 shipments was a modest (given the current standard of measurement) 6.6% below the total for the same month a year earlier.

And the value of new orders received by U.S. electronic components makers increased for the third month in a row during April (+1.9%), after recording gains of 3.1% in February and a sharp 12.5% during March. During April of this year, the value of orders received by component manufacturers was a very strong 21.7% greater than during the same month of 2001. Through the first four months of 2002, shipments were running 23.8% behind the year-ago pace, while orders were off by "only" 10.8% from the January-April 2001 total. This suggests that the over-the-year trend in shipments will continue to decline during the second half of this year -- and finally turn positive again during the early months of 2003.

The dollar value of shipments from U.S. manufacturers of computers (inclusive of PCs, servers, laptops, etc.) reached an estimated $4.94B during April 2002, a total 1.5% above March’s revised level. This follows a 4.1% drop in shipments between February and March and a 6.5% decline between January and February. Nevertheless, despite the March-to-April improvement, the value of April 2002 computer industry shipments was still a discouraging 26.1% below the total for April of 2001.

And, in contrast to the shipment trend, the value of new orders received by U.S. manufacturers during April showed continued weakness. New orders to U.S. computer equipment manufacturers fell 2.8% between March and April, following an even-stepper 10.1% decline (revised down from a preliminary -4.8%) the month before, so a strong recovery in shipments during the months immediately ahead is very unlikely. The value of orders to the industry this April was still running 31.8% behind the total for the same month last year. Year-to-date (i.e., over the first four months of 2002) both shipments and orders were about 30% lower than during the first-third of 2001.

The value of shipments from U.S.-based manufacturers of non-defense communications equipment was 2.7% higher this April than in March. But the April 2002 shipment level was still a steep 19.7% below the total for April of 2001.

Even more encouragingly, the value of new orders received by U.S. communications equipment manufacturers surged in April following a steep 11.7% plunge during March -- but after recording over-the-month gains in both January (+12.2%) and February (+0.9%). The value of new orders received by the industry soared by 11.6% between March and April. Nevertheless, the April 2002 orders level was 11.1% below the volume recorded during the same month of 2001.