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Semiconductor orders hit 9-year low

The semiconductor industry has taken a beating this quarter as a new report shows chips orders at the lowest level since 1987.

The semiconductor industry has taken a beating this quarter.

Although many analysts and vendors already indicated that PC sales had fallen off in the first quarter, the slowdown was underscored by a Semiconductor Industry Association report that the "book-to-bill ratio"--a major indicator of orders for semiconductor chips--dove to 0.80 in March, the lowest since January 1987.

The book-to-bill ratio is considered healthy at 1.00 or higher; anything below that indicates market weakness. The number raises concern about not only the chip industry but also PC sales because it indicates slackening demand for computers as well.

The ratio is expected to rise in the next couple of months, but the industry got more bad news yesterday when Advanced Micro Devices reported a 70 percent drop in first-quarter earnings. Net income fell to $25.3 million, down from $84.3 million in the first quarter of 1995. Net sales dropped from $627 million in 1995 to $544 million.

In addition to the fall in chip demand, AMD's problems stem from a botched strategy to deliver Pentium-class processors and increasing competition from industry leader Intel.

"We continued to feel the effects of the lack of a fifth-generation [Pentium-class] microprocessor...Our [plant] in Austin, Texas, was substantially under-utilized in the face of weak demand for Am486 core-based products," said W.J. Sanders III, AMD chairman and chief executive officer.

But the slowdown didn't effect just companies with other strategic weaknesses. Even heavyweight Motorola saw chip orders decline 5 percent. "The personal computer/workstation segment was down significantly," Motorola said in a statement.

The company reported a 3 percent rise in earnings for the first quarter. Earnings came in at $384 million, up from $372 million for the same period a year earlier. Revenue jumped almost 16 percent, however, to $6.96 billion. The company attributed the relatively flat earnings to pricing pressures in the cellular phone industry, as well as softness in semiconductor sales.