Semiconductor Equipment Monitor

Staff -- Semiconductor International, 11/1/2002

The composite book-to-bill ratio for North American-based semiconductor equipment manufacturers fell between July and August — the third consecutive month of retreat for this important forward-looking indicator.

According to the most recent survey conducted by Semiconductor Equipment and Materials International (SEMI), the book-to-bill ratio declined from a revised level of 1.22 in July to a reading of 1.14 during August. This tells us that for every $100 worth of equipment shipped during the month, an estimated $114 worth of new orders were received by manufacturers. During August of last year, the book-to-bill measure stood at 0.62 — not too far above the record-low level of 0.44 recorded during April 2001.

But after an encouraging seven-month run of improved orders, bookings eased during August. Preliminary data for August 2002 showed bookings declining by 5.1% from their revised July level, following cumulative gains of almost 60% during the prior six months. Billings, on the other hand, actually increased by a modest 1.2% between July and August — thanks in large part to the accumulation of new orders placed over the first half of the year.

The value of equipment shipped by North American manufacturers has now fallen below $1B for 12 consecutive months. And August 2002 billings were still about 14% lower than during the same month a year earlier. But the $1.12B worth of new bookings was 57% greater than the level of bookings reported during August 2001, so there’s clearly more work in the pipeline now than there was a year ago.

SEMI has also compiled global sales data covering trends for the rest of the world through the first seven months of this year (just a one-month lag from the North American market data). Through July of 2002, global semiconductor equipment sales were worth ~$10.69B — about 48% less than the $20.47B worth of equipment sold worldwide during January-July 2001.

Compared with 2001’s seven-month totals, equipment sales to the Asia-Pacific market (excluding Japan) during the first seven months of this year were off the least severely (-28.5%), while sales into the North American market were 46.4% lower during January-July 2002 than over the first seven months of 2001. Much steeper equipment sales declines were recorded in both the Japanese (-64.4%) and European (-60.1%) markets during the first seven months of this year.

Given the realities of the global economy — and weak demand for most kinds of IT and communications equipment — there’s been no need for immediate capacity expansion on the part of chipmakers during 2002. So most “buys” this year have been technology-driven rather than capacity-driven. However, we’re still confident that the global market will bottom out by the end of this year, and that we’ll start to see some sequential gains (from the new — very depressed — base) over early months of 2003.

The average capacity utilization rate among U.S. semiconductor manufacturers has moved up from 63.1% at the beginning of this year to 69.4% during August — a relatively modest gain off an abysmally low level, but unambiguously moving in the right direction. Still, it pales in comparison to the 90%-plus utilization rates that were the norm in 1998-2000, or even the 35-year-average capacity utilization rate of 79.6%. Nevertheless, as more firms become convinced of the sustainability of a global economic recovery during the latter months of this year and into 2003, pressure should build throughout the world for investment in new, more efficient, cost-reducing chipmaking equipment and technologies.