All eyes are now on tool orders as key cycle indicator
By J. Robert Lineback
Semiconductor Business News
(03/21/01 12:16 p.m. PST)
NEW YORK -- With semiconductor capital spending still falling deeper into negative "growth" territory, Wall Street is turning more of its attention to tool orders, believing that the bookings rate will be an early indicator of when the industry downturn will hit bottom.
Historically, equipment bookings fall 50-to-70% from their peaks in previous cycles, according to analysts moderating a panel discussion with top executives at the SEMInvest conference in New York City today. Industry data on February bookings will be issued Thursday afternoon by the Semiconductor Equipment and Materials International (SEMI) trade group.
At the SEMInvest meeting, the consensus was that tool orders plunged last month but still not low enough to become the bottom of the current downturn.
January's $1.89 billion in bookings, based on SEMI's three-month moving average, was 34% lower than the current cycle's peak of $2.99 billion in October. SEMI's book-to-bill was at 0.81 for January, down from 0.99 in December (see Feb. 20 story). An informal SBN poll of analysts and executives attending the investment conference this week indicates that many believe the book-to-bill for February will come in the 0.75 range--meaning that $75 of new orders were received by equipment suppliers for every $100 worth of products shipped.
During today's panel discussion, top executives from Applied Materials Inc., KLA-Tencor Inc., and Teradyne Inc. guessed that the industry's equipment bookings will exceed the historical decline of 50-70% from October's peak. That could happen within the next three to four months, they said, but as was the case during much of the SEMInvest conference, no one was certain.
"I will be very quick: peak-to-tough greater than 50% [decline]," predicted Joseph R. Bronson, executive vice president and chief financial officer of Applied Materials. "Longer [rather] than shorter," he added in response to a question about how long it will take before the industry hits the bottom.
Generally agreeing were Teradyne CEO George Chamillard and KLA-Tencor chief executive Kenneth Schroeder. But all three executives on the panel indicated that the lack of visibility was so great, no one really knows what will happen in the next couple of quarters.
"You have to manage it like it is going to last for a long time," said Schroeder, who is also KLA-Tencor's president.
Chamillard, who is Teradyne's chief executive, president and chairman, noted that the semiconductor capital equipment business grew more than 70% last year while device makers saw their revenues increase 35%. For that reason, equipment suppliers must wait longer for the recovery to reach their tool markets, he added.
Has the industry seen the worst of the month-to-month declines in bookings? "I would say 'no' because I don't see any positive signs," responded Applied's Bronson.
Teradyne's Chamilliard suggested that the rate or decline might ease soon, but bookings will continue to fall sequentially each month until chip inventories are cleared by end-equipment manufacturers, he added.
So when will the fab equipment business recover? Probably not until new capacity is needed, which probably won't occur until 2002, according to most executives presenting at the conference this week. "Capacity buys are still a year away," said Douglas Marsh, vice president of business integration at ASM Lithography, during a presentation on Tuesday.
In addition to wafer processing tool segments, backend assembly systems markets are still a year away from healthy capacity buys, said Kulicke & Soffa Industries and other major suppliers in presentations this week.
According to analyst Byron Walker, who tracks semiconductor equipment segments at USB Warburg LLC, this downturn has all the makings of being the worst industry slump in 15 years, but for investors it's relatively easy to pick the winners in this cycle. While it remains unclear what type of end-equipment products will lead the chip industry out of the slump, the growth ICs will all be made by tools supplied by companies presenting at SEMInvest, noted Walker.
The capital equipment analyst said the consensus at the meeting seem to indicate that the earliest the bottom will reach equipment bookings could be June or July, but the latest start to the next recovery cycle would most likely be in the fall.
"The products will require new technology, and therefore any leftover inventory will have to be written off," he said after today's panel discussion. The need for new ICs, fabricated with next-generation technologies, will then trigger the capital equipment recovery--assuming there is no serious economic recession or war in a major oil-producing country, Walker quickly added. |
