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Hopeful signs for chipmaking industry

The ratio of what's ordered to what's shipped is improving, but there's still a long way to go before a full return to high profitability.

For several months, orders for equipment used to make computer chips have been approaching sales of that equipment, a rosy sign for the beleaguered chip industry.

But there still is a long way to go before chipmaking is as profitable as in better days.

In November, the North American semiconductor industry ordered $805 million of chipmaking equipment and materials, the Semiconductor Equipment and Materials International (SEMI) industry group said yesterday. Those orders were 85 percent of the $963 million of equipment that was shipped.

The ratio of what's ordered to what's shipped is called "book-to-bill," and having that ratio at 1 generally indicates the industry is healthy, SEMI spokesman Mike Droeger said. For growth, the ratio has to be greater than 1--indicating that the industry is ordering more for future use than is being shipped at the present.

"Most analysts figure we're as low as we're going to get this time," Droeger. However, analysts are split on whether a recovery has just begun or will begin sometime in the next several months, he said.

For months, the book-to-bill ratio has been less than 1, dropping from figures consistently greater than 1 in 1997. The low point was in August and September 1998, when book-to-bill was at 0.57.

"We're still not fully out of this downturn," Droeger said. "If you track back, it's in the third year."

The book-to-bill ratio can be misleading for a variety or reasons, he noted. For example, it doesn't show absolute dollar amounts of the business transactions.

And that dollar amount is significant. Although the $805 million in orders of November 1998 is an increase from October, it's still less than half of the $1.633 billion from November a year ago.

In addition, there are different types of orders--upgrades to existing chip fabrication facilities or investments in new facilities. The latter is a better indicator of the chip industry's optimism.

Right now, the orders are for upgrades--purchases that alone "will not return the equipment and materials industry to its former profitability," said SEMI President Stanley Myers in a statement. "We certainly hope to get to the point where significant new capacity is needed before the year 2000."