Electronics Industry Update

-- Semiconductor International, 3/1/2001

The total dollar value of worldwide semiconductor sales fell by 1.2% between October and November of 2000, according to preliminary data released by the Semiconductor Industry Association, as the semiconductor market continued to lose momentum as we moved into the final weeks of 2000. Between the same two months of 1999, worldwide chip sales had grown by 7.7%.

The estimated dollar value of semiconductor chip sales for November 2000 was 17.4% greater than during the same month of 1999 -- a solid increase by most standards of comparison, but the slowest over-the-year growth recorded by this market sector since June of 1999.

Through the first eleven months of 2000, the estimated value of overall worldwide semiconductor sales was $184.5B, or 38.6% greater than over the January-November period of 1999. The value of discrete/optoelectronic chip sales (about one-seventh of the semiconductor total) was up an impressive 45.1% through November 2000, and DRAM sales -- despite their end-of-year downturn -- had grown by an exceptional 45.6%. Growth in microprocessor sales has continued to lag, however -- a reflection of both lower average prices and recently-sagging PC demand. The value of microprocessor sales through November of 2000 was running a relatively modest 17.6% ahead of the total for the first eleven months of 1999.

Between October and November of last year, semiconductor sales fell slightly in two of the four broad regions of the world for which the SIA summarizes data. But the year-to-date 2000 sales in all regions remained comfortably ahead of the dollar sales level realized during the first eleven months of 1999.

Following are the October-November 2000 semiconductor sales trends by major geographic region (with the 1.2% decline in global sales value being the relevant point of comparison):

** The Americas: -0.3%

** Europe: +2.9%

** Japan: -1.7%

** Asia-Pacific (excluding Japan): +4.8%

The dollar value of chip sales to the Americas this past November was 17.5% above its November 1999 level, an expansion pace right in line with the 17.4% average global over-the-year increase in sales. Cumulative year-to-date sales to the region were running 35.7% higher through the first eleven months of last year when compared to January-November of 1999, versus the somewhat-stronger global year-to-date increase of 38.6%.

Sales to Europe during November 2000 were 16.0% above their November 1999 level. Year-to-date, chip sales to this region of the world were running 34.7% ahead of the 1999 pace through the first eleven months of 2000.

Sales to Japan were 29.0% higher this past November than during November 1999. Through the first eleven months of 2000, chip sales to Japan were growing at a pace 44.2% ahead of the 1999 level -- quite a bit better than the worldwide growth pace of 38.6%.

The most severe slowdown in recent months has been evidenced in numbers for the rest of the world. The dollar value of chip sales to the rest of the Asia/Pacific market (all nations of the region, excluding Japan) was only 8.4% greater this past November than during November of 1999. January-through-November sales during 2000 were 40.7% greater than over the first eleven months of 1999 -- a stronger gain than that registered in either the European or Americas' markets, but slightly below the increase recorded by Japan. And this past November's over-the-year sales change in the region was the smallest for any month since February of 1999 -- so this formerly fast-charging region was losing the most growth momentum as we entered the final month of 2000.

End-market demand

Industrial production in the nation's electronic components industry group rose by a solid 2.1% between October and November, following only a slight 0.6% increase the month before.

The industry's actual production index reading during November 2000 stood at 2183.8 -- indicating that electronic components output is now at a level almost 22 times the volume recorded during the average month in 1992.

Industry output during the first eleven months of 2000 was estimated to have risen to a level 74.9% above the total production count for January-November 1999. November 2000 output by electronic component manufacturers was 70.3% greater than during November 1999 -- a still-exceptional over-the-year increase, but the smallest recorded during the past nine months.

The industry's U.S. production capacity as estimated by the Federal Reserve Board grew by 72.9% between December 1999 and December 2000, following an increase of less than 32% during 1999. Product demand had been so strong at mid-year 2000 that even with the explosion in new manufacturing space, the capacity utilization rate for the industry rose to 99.9% during June. By last December, though, the utilization rate had faded to 85.3% -- still well above the overall rate for manufacturing of 79.1%, but a sure sign that industry expansion had gotten ahead of demand growth and that average chip prices were under increasing pressure.

Total electronic components industry production during 1999 was 48.5% greater than during 1998. By the time the final numbers are in for 2000 it looks like industry output will have expanded another 75.3% above the 1999 level -- but there's little doubt that gains will quickly fade as we move through 2001.

Industry production growth in the computers/peripheral equipment sector of U.S. manufacturing slowed markedly during the final quarter of last year.

Estimates from the Federal Reserve Board's monthly industrial production survey show that computer/peripherals industry output during December 2000 rose a scant 0.4% above the November production level -- the smallest monthly increase recorded since the middle of 1998.

Nevertheless, computers/peripheral equipment output has now expanded on a month-to-month basis every single month since May 1998 -- that's 32 consecutive months and still counting. Preliminary estimates for full-year 1999 show industry output rising 44.2% above the 1999 total. But December 2000 production was at a level "just" 39.6% ahead of the final month of 1999 -- "just", because this is the smallest over-the-year monthly gain recorded in better than two years (since July 1998, to be exact).

Last year's 44% increase in production wasn't quite as strong as 1999's 57.7% gain, but impressive nevertheless -- particularly in light of the fact that total manufacturing output expanded by just 5.6% over the year. And at this point it looks like we should see the computer/peripherals industry expand output by about another 35% or so during 2001, despite a general slowdown in overall U.S. economic growth, and another 46% or so in 2001 -- a gain right in line with what we saw last year.

Output from the nation's communications equipment industry is estimated to have increased by a solid 3.0% between October and November of 2000, following a gain of exactly the same magnitude (as revised from the original +2.5% estimate) the month before. Industry output has now grown in every month since December 1999, following a temporary "down" period when production declined for three consecutive months during the fall of 1999.

Overall communications equipment production during the month November 2000 was an exceptionally strong 38.6% greater than during November of 1999 -- the largest over-the-year growth ever recorded in the history of this data series. And overall industry output through the first eleven months of 2000 was running 23.4% ahead of the January-November 1999 total.

Communications equipment industry production increased by 13.0% during 1999, and was on a pace to easily surpass this with about a 23% gain last year. Internet and telecommunications investment has remained strong worldwide even as we've seen signs of moderating demand for computers and consumer electronics goods.

And all signs point to a continuation of solid output growth this year, with total 2001 communications equipment industry production projected to rise another 19-20% above last year's solid level. Production gains during 2002 should be about on par with the 23% increase registered last year.