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To: vampire who wrote (48185)	6/20/2001 1:18:29 AM
From: Henry D	Respond to of 70976

Metsin6, thanks for the interpretation. Henry

To: vampire who wrote (48185)	6/21/2001 12:51:12 AM
From: $Mogul	Respond to of 70976

The book-to-bill is a ratio calculated via a three-month average of orders booked, divided by a three-month average of sales billed. By definition, the BTB values during a period of several months reflect the relative changes in sales and orders. The predicament of the BTB as an indicator of market well-being is that a monthly value of the BTB may increase versus the previous month in two opposite situations: When orders increase faster than sales, which is a positive situation indicating that business is growing. When orders decrease more slowly than do sales, which may happen when the market is in a slump. The same uncertainty applies to a decrease in the BTB value. The BTB may decrease when orders decline faster than sales, which is a negative situation. However, the BTB also may decline because the increase in orders does not keep up with the increase in shipments when the market is booming. Lack of capacity is one factor that contributes to this situation, for instance. In this case, the BTB conveys an incorrect message. The IC Book-to-Bill Ratio Though the BTB has usually portrayed market conditions accurately, it may mislead its users by announcing a false change in market direction in very critical times. Two examples of such situations from the IC market are outlined below in Chart 1. Situation I: In the third quarter of 1983, the BTB decreased for a couple of months after almost a year of steady increases. This was a false alarm, since neither sales nor orders followed it. Situation II: In the first quarter of 1985, the BTB indicated that the market was improving. Sales data disproved it. The BTB went from 0.61 to 0.75 (an increase of 23 percent), because sales were decreasing faster than orders. Thus, the ratio of orders to sales improved, while the market itself was heading down. Those using the BTB at face value were disappointed because the market did not follow the BTB improvement. On the contrary, it continued its decline for another two quarters. Fortunately, the Semiconductor Industry Association decided to cease publishing the IC BTB ratio three years ago, due mainly to the turmoil it had caused to related stock prices. Billings Tell Big Picture Source: Advanced Forecasting Inc. Semiconductor Equipment Book-to-Bill Ratio SEMI collects and publishes monthly bookings and billings data for specific product segments. Charts 2 and 3 exhibit the BTB, as well as bookings and billings in dollars for the wafer processing and automated test equipment segments. Analysis of the data proves that the equipment BTBs cannot serve as market predictors (similarly to the IC BTB). During the period from February 1993 to February 1996, the BTB correlated very poorly with actual shipments. Two almost identical periods of BTB decline had opposite results. The BTB decline at the beginning of 1995 was followed by a strong 1995 market. On the other hand, the BTB decline at the beginning of 1996 was an overture to the 1996 recession. Analyses of increases of the BTB lead to similar conclusions. In sum, a steep decline of the BTB toward the zero level does not guarantee a recession, nor does a steep increase assure that a strong growth will follow. Book to Bill Fails Again! Source: Advanced Forecasting Inc. The pattern of the test equipment BTB is even more interesting than the front-end BTB pattern: The BTB tends to enter a negative territory when a recession begins. Nevertheless, the test equipment BTB has declined below the zero level during strong growth periods (e.g., 1993 and 1994). To emphasize the unreliable predictive power of the BTB, note its recent decline from June to September 1999 (Chart 3). It is similar to the 1995 and 1997 declines, just prior to a recession. However, it is also similar to the 1993 decline, in the middle of the 1992–1995 boom. No Convergence of Data on Test Equipment Source: Advanced Forecasting Inc. The aforementioned examples provide enough evidence to discount the BTB as an accurate predictor of turning points. Using the BTB to predict the future is nothing better than guessing. Are there alternatives to the BTB? Yes. Bookings! Bookings deliver better predictive information than the BTB. All the charts indicate that bookings accurately call the turning points in shipments. The main disadvantage of bookings is the issue of double-bookings that tend to disappear as soon as supply matches demand. Using the appropriate smoothing technique on bookings will generate a clearer picture of future shipments, with the idiosyncratic lead-time of each product segment and geographic region. Other predictors, which have consistently proven their accuracy over the past 13 years, are the quantitative leading indicators. The emphasis here is on quantitative, since the qualitative indicators "suffer" from the opinions of human beings. Such opinions are just extrapolations of the current trend (as academic research had proved in various situations and circumstances). Advanced Forecasting's quantitative forecast has been used extensively by IC and equipment vendors since 1986. AFI's "IC Cycle Forecast" is currently cautiously pessimistic toward the semiconductor market in 2000. This forecast relies on factors that influence the consumption of ICs by various end-equipment industries. It does not use regression/extrapolation of past IC sales, factors which cannot be used to predict turning points. The AFI analysis methods employ advanced mathematical manipulations of data from reliable sources rather than the expectations and opinions of industry executives. Every month this forecast generates a new prediction for the month after those 19 months already predicted. For example, the January 2000 forecast predicts July 2001 sales. Previous predictions are not modified as we approach the predicted term! Summary The BTB ratio contains only part of the information required by decision makers to describe the true market situation. In certain circumstances, as described above, the BTB may mislead its users. Thus a more comprehensive measure is required that will overcome the BTB's shortcomings. One solution is to incorporate more information that will accurately indicate whether the BTB growth or decline is caused by positive or negative changes in the market. This will assure decision makers of what is really happening in the marketplace and will increase their confidence in the index