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Chip equipment makers see better days

Billings for chip manufacturing equipment reach their highest levels since May 2001.

North American chip equipment makers received more orders in May than products shipped out, signaling an improved outlook for the sector, according to a new report.

Last month, chip equipment makers posted $1.58 billion in bookings, while billings averaged $1.42 billion. That resulted in a book-to-bill ratio of 1.11--$111 in new orders for every $100 in product sold--according to the report released Friday by the trade group Semiconductor Equipment and Materials Institute (SEMI).

While that performance was nominally down from the previous month, it was a significant improvement over the same period last year. And industry watchers, including SEMI, say more improvement is likely on it way.

"Billings for semiconductor manufacturing equipment have increased sequentially in each of the past eleven months and are at the highest levels since May of 2001," Stanley Myers, SEMI's chief executive, said in a statement. "Sales in the first five months of 2004 are more than 50 percent higher than the first five months of 2003. The apparent stabilization of bookings and billings at these high levels indicates that 2004 will be a strong year for the semiconductor capital equipment market."

Industry analysts are also predicting a good year for chip sales. Market researcher iSuppli said it expects worldwide chip revenue to reach $226.5 billion this year, up 25 percent over the previous year. Next year, iSuppli expects to see smaller double-digit growth of nearly 12 percent, before flattening out in 2006.

The performance of the semiconductor equipment industry and the chip industry tends to be cyclical. As chip plants are brought on line to meet pressing demand, supply will eventually be met, and later, a surplus will develop. As a result, demand for more chip factories and equipment begins to wane.

For example, chip sales plunged in 2001, following the burst of the Internet bubble. Chip equipment makers shared in the pain.

In October, chip equipment makers saw the book-to-bill ratio reach parity for the first time since summer 2002. And traction continued to build toward the end of last year.