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Orders up for chip industry

The semiconductor industry is on a roll, according to the October book-to-bill ratio, a key indicator of chip sales.

The semiconductor industry is on a roll, according to the October book-to-bill ratio, a key indicator of chip sales.

The ratio, released today, rose to 1.10 for the month, the highest level reported this year. The ratio reflects the number of new orders against what the chip vendors are actually billing for. A perfect balance between demand and billing is represented by 1.0. The higher the number, the higher the demand for chips.

Analysts say the increased demand is due to a strong holiday season for PCs and increased orders from corporate users.

New orders, in fact, rose 17.9 percent to $3.7 billion during October in the North and South American regions compared with the previous month, according to the Semiconductor Industry Association. September's revised ratio was .98.

"The biggest surprise was the increase in bookings. I can't remember the last time new orders were up 17 percent," said Rob Chaplinsky, semiconductor analyst at investment banking firm Hambrecht & Quist.

Chaplinsky added that his own firm had expected a ratio of 1.06 and other analysts had expected even a lower ratio in October.

The strong results are expected to pump up stocks in the semiconductor market on Tuesday.

The upcoming holiday season contributed to the sales upswing.

"Everyone is gearing up for the holidays and there is continued strength in the computer market. Fifty percent of all chips go into computers," said Jeff Weir, spokesman for the Semiconductor Industry Association.

The Association said it will stop calculating monthly book-to-bill ratios for the Americas at the end of the year. Semiconductor watchers will instead have to rely on monthly worldwide figures.

Although Wall Street has relied on the indicator to evaluate the ongoing health of the chip industry, Chaplinsky said that the Association's decision is for the best.

"The figures for the Americas show only a third of the picture for the semiconductor market. It hasn't been the most accurate representation," Chaplinsky said.