By Sheila Galatowitsch
SAN JOSE, Calif.—For the first time since March, North American-based semiconductor equipment manufacturers in July saw an uptick in billings and new orders, resulting in their best book-to-bill ratio since the cold dark days of February.
Although these figures are still 19 to 35 percent below what vendors posted in July 2002—one of the worst years ever for suppliers to chipmakers—it's “a small piece of good news, perhaps the first piece in a series of good news,” says George Burns, president of the research firm Strategic Marketing Associates (Santa Cruz, Calif.).
It signals that chipmakers finally believe global economic recovery is near and are willing to make the capital investments necessary to meet future demand. The figures are also a reflection of the rising sales of semiconductors for computers, communications and consumer devices, manufacturers' depletion of inventory stocks, and capacity utilization on the leading edge reaching 96 percent, as reported by the Semiconductor Industry Association (SEMI; San Jose, Calif.) this summer.
Chipmakers are likely to increase their capital spending by $3.6 billion this year, up 13 percent from last year, according to Burns. “Asian and Japanese companies are leading the way out of the downturn for equipment vendors,” along with the 30 300-mm fabs operating and under construction worldwide.
Vendors' balance sheets had been sliding since March, when billings were $857 million, bookings were $777 million, and the book-to-bill ratio was 0.91.
In the July report published by SEMI, vendors saw $788 million in billings, $763 million in bookings and a book-to-bill ratio of 0.97. (A book-to-bill of 0.97 means that $97 worth of new orders was received for every $100 of product billed for the month. The billings and bookings are based on three-month averages.)
These figures are up slightly from June, which had a 0.93 book-to-bill ratio. But they are significantly off last July's $969 million in billings and $1.18 billion in orders—a sharp rise in sales over the second quarter 2002 that fizzled out by year-end.
With memories of that disappointment, chipmakers are investing cautiously, concerned about how the rest of 2003 will unfold, says Bill McClean, president of IC Insights Inc. (Scottsdale, Ariz). If growth continues into double digits, chipmakers will spend with more confidence.
IC Insights forecasts capital spending to increase by 10 percent this year and 48 percent next year, with overall market growth at 13 percent this year and 23 percent in 2004. “A lot will come in the second half of this year,” says McClean.
Signs of a recovery, however small, are welcome news to equipment vendors who survived the past two years by cutting workforce and closing production lines. Applied Materials Inc. (Santa Clara, Calif.) announced in August that orders for its wafer fabrication equipment in the third quarter were up nine percent over the second quarter. More than a third of the orders came from manufacturers in Taiwan, 20 percent from North America, 18 percent from Japan, and the remaining roughly divided among Korea, Europe, Southeast Asia and China.
Last month, new president and CEO Michael Splinter told a Smith Barney Citigroup Inc. technology conference that the company expects the upturn in orders to continue strong through year-end and be a “harbinger” of good sales to come.
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