VLSI: Tool buys improving to correct capacity constraints

January 19, 2006 – December is typically a slow month for semiconductor manufacturing equipment purchases, but initial signs point to an improving environment for equipment demand, according to VLSI Research Inc.

Worldwide equipment bookings rose 3.6% sequentially and 27.0% year-on-year to $4.91 billion. IC equipment sales (including tools used in display manufacturing) were $4.85 billion, increases of 11.0% month-on-month and 5.3% year-on-year. The book-to-bill ratio (B:B) for equipment was 1.01, the sixth straight month above parity, meaning that $101 worth of orders were received for every $100 worth of product billed. The B:B was 0.84 a year ago.

Equipment demand has been increasing steadily since the summer, with orders finishing the year just under the 12-month high set in July. Test equipment sales also finished strong, with a 12-month high of $1.06 billion, up 10% from November and 27% from December 2004. Utilization rate for frontend processes fell back from 96% in November to about 90%, but test and assembly utilization remained around 95%.

“Considering that December is typically a slow month for equipment buying, the recent data reflect an improving bookings environment for the industry,” stated VLSI. “The scramble for capacity has resulted in a flurry of order activity, which is expected to continue through the first quarter of 2006.”

For the full year 2005, worldwide equipment orders totaled $51.29 billion, a 7.6% decline from 2004, while IC equipment sales of $43.97 billion represented a 4.9% slide from the prior year. The B:B ratio came in at even parity of 1.0.

Japan remained tops in market demand for IC equipment during 2005 (25% share), growing its lead over several regions with consumption around 18% of overall demand — the US, Taiwan, and now South Korea, which picked up five percentage points through the year. Declines in consumption were seen in China and rest-of-world regions. Demand from Taiwan and Korea has reached 40% of overall market demand, up from just 30% in August; during the same period, demand from the US and Japan has slipped from 50% to 40%.

For ICs, December orders were $19.91 billion, up 15% from November and 29% from a year ago. Sales of ICs were down about 6% month-on-month but up 2.3% year-on-year, for a B:B of 1.15. Total IC sales in 2005 rose 7.4% to $192.00 billion.

Looking ahead to January, VLSI projects equipment orders to fall 7.7% to $4.53 billion, with sales off by 12.3% to $3.64 billion, slightly above levels from Jan. 2005, for a B:B of 1.01. IC demand also is projected to dip: ~4% for orders (to $16.59 billion) and 20% for sales ($14.44 billion), also roughly even with levels from a year ago, with a B:B of 1.01.


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