December IC sales beat expectations, but January shipments in trouble

January 26, 2007 – A final tally of semiconductor equipment and IC demand by VLSI Research shows that both November and December turned out pretty good, even above some expectations. But it’s also apparent that the industry is still adding more capacity while slowing down production, and the next month should show a more-severe-than-usual cutback in IC unit shipments.

December orders, utilization slip

December equipment orders rose slipped 7.0% vs. November to $5.20 billion, but levels were up 3.1% from a year ago. Sales of $5.58 billion were 5.1% better than the prior month, and nearly 25% higher than Dec. 2005. The equipment book-to-bill ratio (B:B) slipped back under parity at 0.93 — its first sub-1.0 mark since June 2005 — compared with 1.05 in November and 1.13 in December 2005, meaning that $93 worth of orders were received for every $100 of product billed for the month.

Utilization rates slipped below the 90% mark but were slightly better than expected: 89.3% for frontend (vs. almost 93% in November), and 91.3%-92.7% for test and assembly, respectively, down from 94.3%. ROW consumption surged to 8% of global, its highest mark of the year; all other regions were down slightly.

For ICs, December orders slipped 5.1% to $18.65 billion, but that represented 7.5% growth from a year ago. IC output kept chugging during the holiday season — sales totaled 10.1% growth to $21.12 billion (about 3% higher than projected), while unit volumes were up ~8.5%, vs. 4.7% during last year’s final holiday month. Chip production slipped 2.9% during December to 495.3 millions of sq. inches (MSI), but was up 7.5% from December 2005. Meanwhile, capacity crept up 0.8% during the month (to 554.3 MSI) and was up nearly 10% from a year ago.

It’s worth noting that December’s growth compared would have been even better, except now VLSI says November chip sales were about $1.0 billion higher than previously thought (a 6% upward revision). The IC B:B was also below parity at 0.98 (its first sub-1.0 mark in two years), vs. 1.02 in both the previous and year-ago months.

4Q tool sales bounce

For the fourth quarter, equipment orders sunk 7% from 3Q to $17.02 billion, but were up 11.8% from 4Q05. Sales rose 1.7% during 4Q to 1.7% (but were up an eye-popping 33% from 4Q05). A 1.6% sequential increase in chip production lagged a 2.5% overall increase in capacity. The numbers show capacity still being added faster than production; production has slowed from ~4% growth in 2Q06 to mid-1% for the past two quarters, while capacity additions have kept in the mid-2% range for the past three quarters.

IC orders in 4Q06 rose 4.4% sequentially to $59.2 billion, while sales rose 6.1% to $57.3 billion. Year-on-year, chip orders rose 5.2% vs. a 12.6% increase in sales. Unit shipments were flat from 3Q06, but were up 11.5% from 4Q05 to 35.8 billion.

2006: Equipment orders surge; US consumption up, Korea down

Equipment orders for FY06 totaled $71.94 billion, a 35.6% surge from 2005, while sales rose 19.1% to $61.36 billion, for a B:B of 1.17 (vs. 1.03 for 2005). Chip production rose 9.8% during the year, vs. 6.1% in capacity growth. Utilization rates for the full year came out to 92.5% for frontend work and 90-94% for assembly and test, vs. 2005 overall utilization levels of >90% for frontend, 92% for test, and just 83% for assembly.

For the full year 2006, IC sales grew 9.6% to $211.22 billion, and unit shipments rose 8.8% to 138.29 billion units.

Global consumption saw two significant trends — the US gained ~4 percentage points to 23%, while Korea lost about the same to 19.9%. Small decreases in consumption were seen in Japan, Taiwan, and Europe, with good gains in China (4.8% to 6.3%) and ROW (2.1% to 4.8%).

Looking ahead: Seasonal IC downward trend, but unit shipments plunge

VLSI expects a typical post-holiday decline in equipment sales (-8.9% to $5.08 billion), but orders are seen still coming in with 3.7% growth to $5.40 billion, for a B:B of 1.06. IC orders are also seen rising 1.7% to $18.97, but sales will drop 22.3% to $16.41 billion, and units are expected to plunge 15.4% to 10.74 billion — the biggest M-M decline in three-and-a-half years. Chip production will also be cut back 2.1% to 485.1 MSI, while capacity will inch up 0.7% to 558.1%. Utilization rates are expected to continue to slide below the 90% mark for all areas — frontend (86.9%), test (88.7%), and assembly (87.6%).


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