Semiconductors

Semiconductor & Semi Equipment Begin a Slow March Back

On June 5th, the Semiconductor Industry Association (SIA) released its annual mid-year forecast projecting worldwide sales of $195.6 billion for 2009, a decline of 21.3% from sales of $248.6 billion in 2008. SIA projects that sales will begin to rebound in 2010, with year-on-year growth of 6.5 percent to $208.3 billion, followed by 6.5 percent growth in 2011 to $221.9 billion.

On June 1st, the SIA announced worldwide sales of semiconductors rose to $15.6 billion in April, an increase of 6.4% from March when sales were $14.7 billion, the Semiconductor Industry Association (SIA) reported today. April sales were 25% lower than April 2008 when sales were $20.9 billion.
 
SIA president George Scalise had some interesting comments:

"The better-than-expected 6.4% sequential increase in April sales was driven by moderate improvements in a number of end-demand drivers and inventory replenishment...[T]he PC market -- a major consumer of semiconductors -- has been stronger than predicted earlier in the year.

"Consensus forecasts currently project that PC unit sales in 2009 will decline by about 6% compared to earlier forecasts of a decline in the range of 12%. Projections for cell-phone unit sales also improved, which are now projected to decline by around 7% compared to earlier forecasts of 15%. PCs and cell phones account for nearly 60 percent of all semiconductor consumption."

Inventory Has Been Worked Off

Looking at industry bellwethers Intel (INTC - Analyst Report) and Texas Instruments' (TXN - Analyst Report) past quarterly results, it appears as though excess inventory has been worked off, and future quarters will likely look more like end-market demand.

Changing Consumer Behavior

The savings rate is up, and the days of excessive debt may be gone for the average consumer, but the majority of the end-market products (smart-phones, net books) that contain these chips are under $1,000.00.

Higher Chip Content in Energy Conservation

Take a sector that looks dismal at first glance, such as Automotive. Looking closer, the chip content in electric or hybrid cars is very high due to power switching and power management. Efficiency was not important in those big 8 cylinder cars of the past, but today it is essential. Our favorite name here is International Rectifier  (IRF - Snapshot Report).

Semi Equipment Book-to-Bill Continues Trend of Improvement

Recently, SEMI* announced preliminary numbers for April of 2009: North America-based manufacturers of semiconductor equipment posted $253 million in orders in April 2009 (three-month average basis) and a book-to-bill ratio of 0.65 according to the April 2009 Book-to-Bill Report. A book-to-bill of 0.65 means that $65 worth of orders were received for every $100 of product billed for the month.

The three-month average of worldwide bookings in April 2009 was $253 million. The bookings figure is three percent greater than the final March 2009 level of $245.6 million, and about 77 percent less than the $1.09 billion in orders posted in April 2008.

The three-month average of worldwide billings in April 2009 was $389.9 million. The billings figure is 11 percent less than the final March 2009 level of $438.3 million, and about 71 percent less than the April 2008 billings level of $1.34 billion.

Historically Off a Bottom?

Looking at the monthly data from April of 2009 all the way back to December of 1996, January was the second lowest book-to-bill ever recorded. The lowest was May of 2001. It took 11 months for the book-to-bill to rise above one that year. The highest was 1.46 in March of 2000. The last three months have shown an uptrend (January 0.47, February 0.49 March 0.56, April 0.65).

So Who Do These Numbers Hurt or Help?

The numbers just confirm what we already know: manufacturers are on the sidelines and are delaying equipment purchases. Firms either generate excess profits making equipment that is technologically superior or they make excess profits when capacity at the fabs is high. Recently capacity at some fabs is less than 50%. Firm such as ASML (ASML - Analyst Report) and Varian Semi (VSEA - Analyst Report) will fare better than firms such as Electroglas (EGLS).