VLSI: Equipment industry outlook has good news and bad news

March 16, 2005 – Worldwide orders and sales of chipmaking tools continued to slide in February, but capacity utilization is on the rise again thanks to inventory workdowns, according to VLSI Research.

Worldwide orders for chipmaking tools continued to slide in February, down 10% both month-on-month and year-on-year to $3.26 billion, although remaining 11% above levels from a year ago. Equipment billings were down 5% sequentially to $3.90 billion, 11% higher than in January 2004. The book-to-bill ratio (B:B) slid back to December’s level of 0.84, compared with just above parity a year ago at 1.04. A B:B of 0.84 means that $84 worth of orders were received for every $100 of product billed for the month.

For ICs, February bookings came in at $16.00 billion, down 1.8% from January and 2.1% from a year ago, while billings rose 1.4% month-on-month and 9% year-on-year to $14.53 billion. The IC B:B was 1.06, flat with January and down from 1.25 a year ago.

The continued decline in equipment orders and sales — the B:B ratio has hovered below the 1.0 parity mark for six consecutive months — reflects the equipment industry’s continued weakness following chipmakers’ purchasing cutbacks in order to cut down inventories. However, as inventory has been reduced, frontend capacity utilization has crept back above the 80% level, to 82.4%, and VLSI projects it to leap to 89% by the end of this month. Also, the IC B:B has stayed above the parity level for consecutive months, for the first time since the slowdown began in June.

For March, VLSI projects a significant pickup in equipment activity, with orders increasing 39% sequentially to $4.54 billion, and sales up 46% to $5.70 billion, while the B:B slips further to 0.80. For ICs, orders are projected to rise 2.6% to $16.42 billion, with orders jumping 25% to $18.22 billion, for a B:B of 1.05.


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