Chip-equips on road back?
The chipmaking-equipment market appears to be crawling toward a comeback--albeit a slow one--indicated by an increase in orders received last December.
The equipment market's book-to-bill ratio jumped five tenths to 0.78 for December 2001 after an increase of a tenth of a percent in November. The jump, which corresponds to a 7 percent increase in orders during the month, potentially means that the market has rebounded from a bottom, analysts say.
The industry's book-to-bill ratio, maintained by Semiconductor Equipment and Materials International (SEMI), compares the number of orders received against the amount of equipment shipped for a specified period. A book-to-bill ratio over 1 means the industry is receiving more orders than it can fulfill, a good sign for manufacturers.
For December, the 0.78 ratio means $78 worth of new orders were received for every $100 of equipment shipped. It's not optimal, but it's better than earlier this year.
Analysts are theorizing, based on the rising ratio, that a plodding recovery in equipment sales could begin in the first half of this year with an increase in purchasing from semiconductor makers such as IBM, Intel and Texas Instruments.
"There are some indications that capacity utilization and unit volume output have improved from the 2001 lows, in particular for some segments of the assembly and test markets," said Stanley Myers, CEO of SEMI.
Chipmakers must still contend with economic uncertainties, Myers said, but analysts expect chip-equipment orders to climb slowly as chipmakers upgrade equipment and build new plants to stay competitive.
U.S. Bancorp Piper Jaffray analyst Greg Konezny, for example, believes orders for equipment bottomed during the fourth quarter of 2001 and will improve modestly during the first half of 2002, before accelerating into the second half of the year and into 2003.
"Our thesis is based more upon the industry returning to a more normalized capital spending ratio rather than substantial growth in semiconductor device demand," Konezny wrote in a report issued Wednesday. "We believe that the chip industry has been under-spending during the last several months relative to manufacturing-technology advancements."
Other analysts believe the competition will drive chipmakers toward several new technologies, including equipment for making chips on 300mm wafers or with copper interconnects, to keep pace with the market.
"Despite the weak near-term environment for equipment, we note that 0.13 micron and copper will continue to drive technology buys as customers are forced to upgrade their fabs in order to stay competitive," Eric Ross of Thomas Weisel Partners wrote in a report.
Still, it will take a long time to equal 2000. December 2001 chip-equipment orders were 73 percent below the $2.4 billion in orders received in December 2000. Revenue for the month was 65 percent below December 2000's $2.39 billion.
The book-to-bill ratio hit a 10-year low in April 2001, posting at 0.42.