Semiconductor Equipment Monitor

Staff -- Semiconductor International, 12/1/2002

Semiconductor Equipment Monitor

The composite book-to-bill ratio for North American-based semiconductor equipment manufacturers plunged between August and September -- the fourth 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 1.02 in August to a reading of 0.84 during September. This tells us that, for every $100 worth of equipment shipped during the month, an estimated $86 worth of new orders were received by manufacturers. During September of last year, the book-to-bill measure stood at 0.64 -- not too far above the record-low level of 0.44 recorded during April 2001. But this September’s ratio can hardly been seen as inspiring, since it represented the first sub-1.00 book-to-bill reading since February of this year. So the encouraging market momentum that began to build during the spring and early summer of this year was waning as we moved into the fall of 2002.

But after an encouraging seven-month-run of improved orders, bookings eased during both August and September of this year. Preliminary data for September 2002 showed bookings declining by 19.1% from their revised August level, following cumulative gains of almost 60% during the first six months of the year. Billings fared slightly better, falling by a mere 1.0% between August and September -- thanks in large part to pass-through on 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 13 consecutive months. But September 2002 billings were actually worth an estimated 2.5% more than during the same month a year earlier -- when the industry was in a tailspin, and problems were exacerbated by the anxiety and loss of confidence that immediately followed the terrorist attacks on New York and Washington. And the $822.6M worth of new bookings received this September was 34% greater than the level of bookings reported during September 2001, so there’s clearly still more work in the pipeline now than there was a year ago. And the modest (2.5%) increase in billings from September 2001 to September 2002 was the first year-over-year gain recorded by the semiconductor equipment industry since March 2001.

SEMI has also compiled global sales data covering trends for the rest of the world through the first eight months of this year (just a one-month lag from the North American market data). Through August 2002, global semiconductor equipment sales were worth ~$12.08B -- about 45% less than the $21.99B worth of equipment sold worldwide during the first two-thirds of 2001.

Compared to 2001’s eight-month totals, equipment sales to the Asia-Pacific market (excluding Japan) during the first two-thirds of this year were off the least severely (-25.6%), while sales into the North American market were 45.1% lower during January-August 2002 than over the first eight months of 2001. Much steeper equipment sales declines were recorded in both the Japanese (-61.7%) and European (-58.1%) markets during the first two-thirds 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 driven by technology, not capacity. However, we’re still confident that the global market will bottom out during the early months of next year, and that we’ll start to see some sequential gains (from the new -- very depressed -- base) by the late spring 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 67.9% during September -- 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 from 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 early months of 2003, pressure should slowly but surely build throughout the world for investment in new more-efficient, cost-reducing, chipmaking equipment and technologies.