Semi Book-to-Bill Ratio
Sixth consecutive increase in equipment orders signals continued aggressive capacity expansion and re-tooling.
Underlying user demand is accelerating for chips, holding memory prices steady in March and early April. Short-lived price plateau will likely be followed by renewed deflation in the second half of the year, particularly once the switch to 128Mb packages intensifies.
Re-tooling for new manufacturing technologies provides further boost to equipment orders. Nearly all major chip producers will be moving to larger wafer sizes, finer densities, and copper interconnects over the next two years.
Analysis
Bookings for semiconductor equipment jumped sharply in March, the sixth consecutive monthly rise. With the March increase of $150 million, orders are now 50% greater than the previous cyclical peak in November 1997. Part of the surge has been rebounding from the dearth of capacity expansion in 1998 and early 1999, but chip demand has accelerated as well. The cycle in chip supply and capacity expansion is just as volatile as ever.
Shipments were only moderately upward, so the book-to-bill maintained a very high level. An increasing share of new equipment orders are comprised of new generation manufacturing technologies, particularly finer circuit densities, which increase the lead time on orders.
Memory chip prices held steady in March, hovering just above the marginal cost of production. An end-of-year inventory bulge in commodity-type components was eliminated in February, and PC orders are strengthening. Nonetheless, renewed deflation is likely within three to four months, given the strong capacity expansion and manufacturing advances. All chip types are experiencing a decline in production costs as the new technologies are adopted, which constrains pricing for all but the hardest-to-get components.
The underlying shortage in several chip types and the adoption of new manufacturing technologies bode well for continued strength in manufacturing equipment orders through the first half of 2000. Most of the expansion is overseas, but U.S. manufacturers are most aggressive in next-generation installations. Some U.S. expansion is also evident, as highlighted by Intel?s recent purchase of a mothballed Rockwell plant in Colorado Springs.
Past the first half of this year, the prospects for semiconductor equipment are uneven. Capacity utilization among U.S. chipmakers remains low and the cost of capital is rising. Chip demand has been very strong, but much of the strength has been a result of the rebound in Asian demand. Some renewed PC demand among U.S. businesses may be occurring, but a robust acceleration is unlikely until June.
Beyond the current cyclical upswing, advances in manufacturing technology are the main positive for equipment demand. U.S. manufacturers of memory and microprocessor chips, such as Intel and Motorola, are already re-tooling and Asian manufacturers are expected to start soon. There are three primary manufacturing technologies in various stages of development: larger wafer sizes, finer circuit densities and replacing aluminum interconnect wiring with copper. All will become industry standards over the next five years, with copper wiring probably instituted the quickest. Each technology reduces cost relative to chip performance by 20 to 30% and thus in total represent a reduction in prices of more than two-thirds.
The SEMI book-to-bill is the ratio of the three-month moving average of new orders for semiconductor manufacturing equipment placed at North American manufacturers divided by the three-month moving average of shipments from the same firms.
dismal.com |
