Electronics Industry Update
-- Semiconductor International, 7/1/2001
The total dollar value of worldwide semiconductor sales during the first quarter of this year was 4.5% below the level for the first three months of 2000. And although lower average prices certainly contributed to the market's decline, they weren't the primary cause.
Unit sales of chips during January-March 2001 came up 3.9% short of the first-quarter 2000 total, so fading worldwide demand for semiconductor products is the most important reason for the current depressed state of the market. Average prices for the first quarter of 2001 were lower than over the first three months of 2000, but the decline was a very modest 0.7%.
According to preliminary data released by the Semiconductor Industry Association, the value of chip sales this March increased by 24.1% from its February 2001 level. And unit sales improved by 12.3% over the month.
But strengthening demand is a given during the final month of any calendar quarter. Compared with sales for the first three months of 2000, both dollar and unit sales were lower this year than last year -- and that's the single most important indicator of the current health of the market compared with sales levels during the past two years.
With, by most accounts, chip inventories still much higher than underlying product demand, average prices have softened over the past six months and will continue to hold dollar volume sales growth in check throughout most of 2001. The average price of semiconductors sold this March was 56.2 cents. This was a scant 0.9% higher than average prices received during March 2000. And the average for the first three months of 2001 (the overall semiconductor average price is highly volatile on a month-to-month basis, largely because of the ever-changing mix of specific products) was 0.7% below the first-quarter 2000 average.
Dollar-valued microprocessor sales volume was 19.4% lower during the first three months of this year than over January-March 2000, while DRAM sales volume plunged by a much steeper 30.1% over the same period. However, the dollar value of all discrete and optoelectronic chips sold in the first quarter of 2001 held up much better, beating the year-earlier three-month total by 3.8%.
The average price for all integrated circuit devices sold worldwide declined by 2.7% between March 2000 and March 2001. The average microprocessor sold during the first three months of this year cost $75.16, a sharp 9.9% decrease from the first-quarter 2000 average.
Average DRAM prices continued their steep decline during March. The average unit price of a DRAM chip sold during the month was $4.39 -- a decline of 1.9% from February. DRAM prices during the first quarter of this year averaged 27.4% less than over January-March 2000.
On a three-month-moving-total basis of sales -- the preferred method of analysis by many -- the sales trend for semiconductors deteriorated for the seventh consecutive month during March. Average dollar volume this March dropped to a level 4.4% below its year-ago level; as recently as last August sales were growing at an annualized rate of more than 50%.
End-Market Demand
Industrial production in the nation's electronic components industry group declined for the third consecutive month during March, the first time that we've seen such a succession of "down" since the mid-80s. In fact, the last time that the industry recorded even a single month of output contraction was during June 1994.
Industry output fell by 1.3% during March, following a decline of 1.1% (as revised down from the initial estimate of a negligible 0.1% loss) during February and a sharp 2.2% decline during the first month of the new year.
The industry's actual production index reading during this March stood at 2123.6 -- indicating that, despite the losses recorded during this year's first quarter, electronic components output is still at a level more than 21 times the volume recorded during the average month in 1992.
Industry output during 2000 is estimated to have risen to a level 74.2% above the cumulative production count for January-December 1999. But March 2001 output by SIC 367 manufacturers was only 31.1% greater than during March 2000 -- a still-exceptional over-the-year increase, but the smallest gain recorded since April 1994.
There's little doubt that production gains will continue to fade as we move through 2001. We're expecting that growth will throttle back to an increase of something on the order of 26% in 2001, as demand cools at the same time that significant additional (highly competitive) worldwide productive capacity comes on line. But the output slowdown is likely to be mild by industry standards since demand for specialty chips used in mobile communications, networking and Internet-related applications will remain reasonably strong -- although prices will weaken enough to more severely limit the dollar value gains that can be realized by U.S. producers. By 2002, we expect that industry growth will bounce back to an annual rate of 35% -- still less than half the rate of growth recorded during the heady days of 2000.
Estimates from the Federal Reserve Board's monthly industrial production survey show that computer/peripherals industry output declined during three of the first four months of 2001. April production was 0.2% lower than in March, and output estimates for the first quarter of the year have been revised substantially lower.
Computers/peripheral equipment output in the United States had increased on a month-to-month basis for 32 consecutive months, prior to the government's revised numbers beginning in January of this year. Final estimates for full-year 2000 showed industry output rising 43.8% above the 1999 total -- but April 2001 production was at a level just 19.1% ahead of the fourth month of last year. This was the lowest over-the-year growth pace registered by this industry for any month since May 1994.
Last year's production growth for computers/peripherals came in sharply below the exceptional 58% gain registered during 1999, but was still well above that for almost any other industry in the economy -- and a stronger gain than we have any reason to expect during the next two years. Through the first four months of 2001, industry output was a cumulative 23.6% greater than over January-April 2000 -- but fast-eroding.
At this point it looks like we should see the computer/peripherals industry expand output by about 19% or so during 2001, despite a general slowdown in overall U.S. economic growth, and about another 29% in 2002 -- a gain still more than one-third less than what we saw last year, and about half as large as the exceptional 1999 increase.
Output from the nation's communications equipment industry is estimated to have declined by 1.6% between March and April of 2001. And this sharp downturn comes on the heels of revisions for the first quarter of the year that showed the industry contracting by an annualized rate of about 5% -- not expanding by the solid 17% annualized rate that the government had originally estimated.
Overall communications equipment production during April 2001 remained a solid 17.3% greater than during the fourth month of 2000, while total industry output for the first four months of 2001 was 23.4% greater than during January-April of last year. And overall industry output during the past year was 24.3% greater than the 1999 total. Communications equipment industry production had increased by a much-less-robust 13.0% during 1999.
U.S. companies have cut back sharply on Internet and telecom investment during the past six months, and growth rates have slowed in global markets as well. Still, most signs continue to point to some gain in communications equipment industry output during 2001 -- although with production growth much more subdued than over the past several years.
Momentum -- and a large but fast-shrinking orders backlog -- should allow the industry to post a gain of about 15% this year. But production gains during 2002 should be in the 11-12% range as the late 1990s momentum is completely dissipated. Consequently, it's likely that the industry will plateau for a couple of years at a level of growth somewhat lower than the annual average recorded during the latter half of the 1990s.
