Chip equipment industry ending 2001 in 'fog'
Orders appear to be at new bottom in downturn, but tool shipments keep slipping lower, say analysts
By J. Robert Lineback
Semiconductor Business News
(11/21/01 14:18 p.m. EST)
The "beleaguered" semiconductor equipment industry stumbled through October, with a mixed-bag of indicators pointing every which way but clearly up, according to the new SEMI book-to-bill ratio, which was released Tuesday evening.
On the surface, the rising index appears to be good news. SEMI's book-to-bill for North American-based tool vendors rose for the second month in a row to a preliminary reading of 0.71 in October compared to a revised 0.64 ratio in September, said the Semiconductor Equipment and Materials International trade group. The three-month average for bookings increased to $651.1 million from $619.2 million in September, while shipments dropped 5% to $916.2 million vs. $619.2 million in the prior month.
SEMI president Stanley Myers said shipments continue to weaken and "there is no appreciable indication of a near-term trend reversal." Too much chip-making capacity and weak end-market for semiconductors "continue to beleaguer the semiconductor equipment industry," he said (see Nov. 20 story).
Goldman Sachs & Co. in New York, for example, is predicting that November's book-to-bill will move up to 0.78, based on lower sales of equipment in the month. The brokerage firm is predicting a 7% decline in shipments during November compared to October. Orders are expected to be flat, setting up a book-to-bill that rises slightly--not exactly good news for the downtrodden semiconductor equipment vendors.
There are, however, the haves and have-nots in the capital equipment business. For example, Applied Materials Inc.--the world's largest chip-gear supplier, which is focused on wafer-processing fab systems--had a book-to-bill of 0.9 in the company's last fiscal quarter, ended Oct. 28, according to company executives during an analyst conference after posting lower sales and a net loss of $82 million (see Nov. 14 story). Another company, Mattson Technology Inc. in Fremont, Calif., reported this month that it had a book-to-bill of just 0.37 in the third quarter and was preparing for "substantial" layoffs in the current quarter (see Nov. 13 story).
Overall, suppliers of frontend silicon-processing tools are faring better than their backend assembly and test counterparts. Orders for wafer-processing tools were up 11% sequentially in October to $588.2 million compared to bookings in September, while shipments were down 5% to $790.0 million, according to SEMI's new report. That gives frontend wafer-processing systems a book-to-bill of 0.74 in October.
Backend chip-assembly and testing systems had a book-to-bill of just 0.50 in October. Orders were at down 29% to $62.9 million in October from September, while shipments in this tool segment were 4% lower at $126.2 million.
Compared to a year ago, semiconductor equipment revenues and orders were down sharply last month, according to the SEMI Express Report on North American suppliers. Bookings were down 78% from $2.99 billion in October 2000, while shipments were 64% lower than $2.57 billion in the month last year.
But the bottom of the current downturn is close, according to industry observers and capital equipment suppliers. "Our thesis remains intact - we are seeing an order bottom here," said SG Cowen Securities Corp. analysts in San Francisco.
A major factor in a recovery next year will be Intel Corp.'s 2002 capital spending plans, which have been the subject of wide debate. SG Cowen said it expects Intel to set its capital expenditures for 2002 at a much lower level than this year's record $7.5 billion. The chip giant is expected to announced its plans in January, while releasing its fourth-quarter results.
"We believe the January estimate could be as low as $5.0-to-$5.5 billion," said SG Cowen in a newsletter today.
Intel's capital spending plans are significant next year because of the cutbacks underway at other major chip makers. "Depending upon what Intel spends next year, we could have a 20-to-20% decline in semiconductor capital spending," said semiconductor analyst Bill McClean, president of IC Insights Inc. in Scottsdale, Ariz. Currently, the research firm is predicting a 25% drop in capital spending in 2002 from $41 billion in 2001, which will be down 32% from $60 billion last year.
Making matters worse for capital equipment suppliers are low capacity utilization rates. In the third quarter, IC fabrication plants worldwide were operating at just 64.2% of their installed capacity, according to a new report released this week by the Semiconductor Industry Association in San Jose (see today's story).
"Next year, we might we see relatively low numbers for utilization in the 70-to-80% range, which is low but I think the issue will be the level of utilization at 0.18- and 0.13-micron," McClean said, indicating that he believes fabs capable of producing devices with those feature sizes will up first. "That should be good news for the troubled capital equipment suppliers because new equipment will be needed to produce those products, which will drive the next upturn," he said. |
