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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: Skeeter Bug who wrote (6583)	8/9/1998 12:41:00 PM
From: Les H	Read Replies (2) \| Respond to of 42834

Semiconductor Equipment: Dialing 911 Monday, July 27, 1998 After Wednesday's market close, Semiconductor Equipment and Materials International (SEMI) released its Express Report, detailing the book-to-bill ratios for North American-based semiconductor-equipment manufacturers. Orders in June dropped 16 percent from May to $911 million. Does anyone see a twisted bit of irony in the number arriving at 911? Sorry, bad joke. We can imagine the tone of those trying to sell equipment to the device-manufacturing community resembles what is said during an emergency phone call: Help! With all the long faces at California's Semicon West 98, it was quite easy to anticipate weak order and shipment numbers for the industry. In its last release, SEMI's principal market analyst Dick Greene suggested orders and shipments would hopefully bottom in May. Fat chance. The industry appears to be spiraling to new lows. For the near term, business conditions do not look like they are going to improve. How low is low? This month, aggregate bookings reached the lowest level since May of 1995 and are only 68 percent of the levels posted in June of 1997. Last week, Kulicke & Soffa reported earnings that highlighted the slowdown in assembly-equipment spending. When we look at the Test/Assembly book-to-bill ratio of 0.66, we see the slowdown in the back end is quite pervasive. Orders for back-end equipment dropped a whopping 21 percent to $208 million from May to June. Shipments fell 13 percent to $313 million. The weakness in the earnings report from Analog Devices has provided us some preliminary indications of what to expect from the ATE companies in the upcoming quarter. While the weakness in Analog Devices' business runs beyond the ATE arena, the writing is clearly on the wall. We should be cautious with any of the ATE stocks at their current price levels. Test/Assembly equipment sales really run when unit volumes are on the rise. Until we get numbers that indicate a resumption of unit volume growth, it is likely that stocks in this arena will languish at or below current price levels. The latest data points we have received from VLSI Research's Industry Pulse data packet are not encouraging on the unit-volume front. Front-end equipment orders and shipments fell 14 percent and 7 percent from May to June. The dollar level of orders arrived at $704 million, while shipments tallied up to $913 million. These numbers are likely to head much lower in the coming months based on what we are hearing from the field. On the Wall Street side of the ledger, particularly among the money-management community, there still appears to be a great deal of hope that these weak numbers mark the bottom of the cycle. It is notable that most of the Wall Street analysts are voicing more bearish tones toward the industry. We have heard rumors that one analyst might call for a bottom in September. We don't think the bottom is in, and even if it is, the recovery will probably evolve in a U-shaped formation. It will be at least a few quarters before the industry's bookings and shipments start to rally to the upside. In the early part of August, we will hear from Applied Materials -- the gorilla of the chip-equipment sector. One of our contacts in the field has informed us that business conditions are continuing to deteriorate and backlog is likely to shrink quite a bit when earnings are released. Wall Street is clinging desperately to its Applied shares as they dare not miss the next "up" cycle. Our feelings toward these ownership positions are very much in line with the ones we expressed earlier in the year. These shareholders will likely tire waiting for the next upturn, and the stock could make new lows sometime this fall.