September 22, 2005 – Orders and sales of equipment and ICs showed tiny sequential declines in August, as the industry prepared to ramp up to meet demand going into the consumer-centric holiday season.

Worldwide billings for semiconductor manufacturing equipment in August were $4.09 billion, down 4.5% from July and down just 6.3% from August 2004, the first single-digit year-on-year decline since the beginning of the year. August billings of $3.91 billion represented a 7.7% decline month-on-month and a 9.2% decline year-on-year. The book-to-bill ratio pushed further above parity at 1.05, meaning that $105 worth of orders were received for every $100 worth of product billed for the month. For the first eight months of 2005, equipment bookings stood at $31.96 billion, down 18.9% from the same period in 2004. Billings stood at $33.73 billion, down 3.8% from Jan.-Aug. 2004.

IC bookings in August, meanwhile, crept forward to $16.35 billion, a 3% sequential increase and up 12% from August 2004. IC billings rose 9% from July to $15.32 billion in August, up 3.6% from a year ago. The IC B:B also stayed above parity (where it’s been all year) at 1.05, level with July and up from 0.95 in August 2004. Through the first eight months of 2005, IC orders were up 1.2% from the same period a year ago to $128.5 billion; sales were up 6.4% to $121.5 billion.

Utilization rates, which touched 92% in July, continued to soar into the mid-90% range in August, levels not seen in over a year: 94.1% for frontend utilization, and 96.5% and 95.5% for test and assembly, respectively. “The industry is finally pulling out of its second quarter slump,” said VLSI market analyst Aida Jebens, noting that frontend utilization has been rising faster than originally predicted, crossing the “buy point” of 92% in July.

Still, VLSI believes the high utilization rates won’t translate into a surge of equipment orders in 4Q05 as was seen in 2003 (a 30% jump in 4Q03 orders). “Utilization typically falls off in January, so it makes sense for them to wait,” stated Jebens, adding that the macroeconomic fundamentals do not exist to support such a growth surge. In fact, like other analysts in recent days, VLSI cautioned that soft demand for electronics due to gas prices, consumer debt, and overall economic concerns, could translate into slow Christmas demand, resulting in a sharp slowdown in chip production.

For September, VLSI projects a significant seasonal ramp-up in equipment demand: 10% sequential growth in orders (to $4.52 billion) and even stronger sales (21% growth to $4.72 billion), which will push the B:B ratio back down below parity to 0.96. IC orders are projected to sink 3% to $15.86 billion, but IC sales will jump 20% to $18.34 billion, for a B:B of 1.00. Capacity utilizations will keep climbing to heights not seen since the industry’s peak in late 2Q04: 96% for frontend and 98%-99% for backend.