Electronics Industry Update

-- Semiconductor International, 4/1/2001

Worldwide Sales of Semiconductor Devices	Manufacturers' Shipments of Computers & Peripheral Equipment
Manufacturers' Shipments of Electronic Components	Manufacturers' Shipments of Communications Equipment

The total dollar value of worldwide semiconductor sales increased by 18.0% between November and December 2000, according to preliminary data released by the Semiconductor Industry Association (SIA). Unit sales volume expanded by a scant 0.3% during the final month of last year, however, so all of the market's perceived strength could be attributed to improved pricing.

Preliminary estimates from the SIA put total chip sales during 2000 at a record-high level of $204.4B, an increase of 36.8% from the 1999 total.

The estimated dollar value of semiconductor chip sales for December 2000 was 22.6% greater than during the final month of 1999. The volume of unit chip sales this past December, though, was a more modest 8.0% higher than during December 1999. Between the third and fourth quarters of 1999, the dollar value of chip sales worldwide grew by 16.1%. Between the third and final quarters of last year, however, global semiconductor sales volume declined by 3.0%.

Average DRAM prices continued to move sharply lower during December. The average unit price of a DRAM chip sold during the month was $5.46 -- a decline of 13.9% from November, following an even steeper plunge of 21.6% the month before. And this past December's DRAM average price was a disheartening 34.6% lower than during the final month of 1999.

End-Market Demand

With demand from end-market consuming electronics sectors (like computers, communications equipment, and consumer electronics) beginning to slow, there's little question that the components industry will grow much more slowly this year than last. Dollar-valued numbers for both orders and shipments remained strong through the end of last year, but a steep fall-off in growth seems inevitable over the first quarter of 2001 as both unit demand and average prices drop.

The value of shipments from U.S. electronic component manufacturers increased by a surprisingly strong 3.9% during December, following a small (1.0%) increase the month before and a sharp (3.0%) decline during October.

At a level of $18.92B (seasonally adjusted), the value of December 2000 shipments of electronic components was 24.8% greater than during the final month of 1999.

New orders to the industry were up a solid 5.1% during December. Although this was only about one-third as strong as November's 15.2% gain, it brought the industry almost completely back from the 20.7% plunge recorded between September and October of last year.

Nevertheless, semiconductor sales and order information (available from association, not government, sources) suggests that a slowdown in overall electronic components industry growth is imminent, both because of weakening global demand and flat to falling average prices.

The value of electronic components industry shipments for full-year 2000 was 25.2% above the final 1999 total, but the value of new orders received by the industry last year was up a notably more subdued 17.0%.

It's a good bet that order growth will slow consistently during the early months of the new year. However, worldwide supply and demand conditions should still be strong enough to support reasonably solid growth during 2001, despite the general economic slowdown. Our current forecasts look for about a 10% gain this year (much slower than over 1999-2000), improving to almost 19% during 2002 (roughly in line with annual average growth recorded between 1995-2000.

Although growth in the dollar-value of both shipments from, and new orders to, the computer and peripherals industry was exceptional during 2000, trends over the final quarter of the year provided clear evidence of the incipient economic slowdown.

Data compiled and published by the U.S. Commerce Department shows that the dollar value of shipments from U.S. manufacturers of computers and peripheral equipment totaled an estimated $14.74B during December 2000, down 0.9% from the November level. Industry shipments had fallen by 1.3% between October and November, after rising at the same magnitude the month before.

Preliminary Commerce Department estimates value shipments of computer and peripheral equipment last year at $170.4B, an increase of 22.7% over the 1999 total. Between 1998 and 1999, SIC 357 shipments had grown by barely 7%, so 2000 was an outstanding year for the industry.

Still, industry growth is likely to continue to slow in the months ahead, if the usually reliable leading indicator of new orders is any guide. After growing by 7.4% between September and October and being little changed in November, new orders to computer/peripheral equipment manufacturers plunged by a discouraging 9.5% during the final months of 2000. For the year as a whole, orders to manufacturers in the industry were up 22.8%, so there's still a fair amount of work in the pipeline to keep SIC 357 manufacturers reasonably busy during the first quarter of this year.

However, there's no longer any question that industry growth will be much slower during 2001 -- just how much slower depends upon the severity of the economic slowdown. But at this point we're still betting that shipment values will be up another 11% or so, and that gains will accelerate to about 15% as we move through 2002.

The burst of the Internet bubble and a slowdown in business investment spending (even for networking and other IT products) by increasingly cautious manufacturers and Internet service providers have begun to impact this long high-flying industry sector. The last several years have been outstanding for the industry; this year and next will be less so, but still solidly positive.

The value of shipments from U.S. communications equipment manufacturers surged 4.1% between November and December 2000, following declines of a cumulative 4.9% over the previous two months. The dollar value of shipments from the industry was 20.5% greater this past December than it had been during the final month of 1999.

The future's not looking quite as bright, however. The estimated value of new orders received by manufacturers in the industry fell by a modest 0.7% between November and December 2000, after rising a slight 0.5% the month before but plunging by 7.6% during the first month of last year's fourth quarter.

For 2000 as a whole (based on still-preliminary numbers), the value of SIC 366 industry shipments rose 21.1% over the final 1999 total. Orders grew at a healthy rate as well. But with 2000's increase of 15.4% running well behind the gain in shipments, it would appear that shipment growth will fade during the first half of 2001.

Business investment in network infrastructure, Internet commerce applications, and mobile communications will continue to provide a solid foundation to SIC 366 market demand, and export opportunities should continue to improve in the year ahead. Nevertheless, it's likely that we'll see growth rates for the industry moderate substantially during the first half of 2001 as U.S. business investment growth slows a bit, and as some of our major trading partners experience an economic slowdown of their own.

This should result in smaller shipment growth -- we're betting about 10% or so in 2001 and about 12% next year -- as the U.S. economy fades in 2001 but then bounces back gradually, and pulls the rest of the world up with it, during 2002.