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Report
says chip industry may be slowing down
"Expectations for (equipment) spending were based
on unrealistically high end-market sales forecasts; it was
only a matter of time before chipmakers realigned budgets
to levels more consistent with revised end market projections,"
SG Cowen analyst Tia-min Pang
Although the semiconductor industry continues to grow, there
are signs it is getting a little tired. Semiconductor Equipment
and Materials International (SEMI), an industry trade group,
said semiconductor equipment makers posted a book-to-bill
of ratio of 1.16, meaning orders were 16 percent higher than
shipments for September.
While that means demand continues to outpace supply, the figure
is down from last month’s ratio of 1.23. During September,
customers booked $2.8 billion in semiconductor equipment orders,
the first sequential decline since September of last year.
The news follows on the heels of a downturn at National Semiconductor.
The company’s shares fell 34 percent Tuesday after the
cell phone chipmaker said sales and profit may decline in
its fiscal second and third quarters because of excess chip
inventory at mobile phone makers. The decline in growth "likely
reflects a seasonal slowing in new orders growth rather than
a significant change in the current cycle," Elizabeth
Schumann, director of industry research and statistics for
SEMI, said in a statement.
Yet Eric Chen, a semiconductor equipment analyst at Chase
H&Q, believes the numbers indicate the cycle may be in
deeper trouble. Chen noted the book-to-bill ratio for test
and assembly equipment makers has slipped for the past six
months, coming in at 0.91:1 in September, compared with August’s
figure of 1.00:1.
Declines in test equipment typically precede a slowdown in
semiconductor sales. "The industry has never before experienced
a mid-cycle…correction that lasted this long," he
wrote in a note released last week, and he advised a "wait-and-see"
strategy toward the sector. Other analysts believe the downturn
is a reaction to market expectations that were already too
high. "Expectations for (equipment) spending were based
on unrealistically high end-market sales forecasts; it was
only a matter of time before chipmakers realigned budgets
to levels more consistent with revised end market projections,"
said SG Cowen analyst Tia-min Pang.
In addition to National Semiconductor, Ericsson cut forecasts
for profitability and sales this year because of losses from
making mobile phones. Ericsson’s phone business lost
money in the company’s fiscal fourth quarter, and the
company blamed reorganization, a lack of components, falling
prices and a weaker replacement market.
Slower than expected mobile phone sales prompted Motorola
to revise its earnings expectations. The company said on Oct.
11 that it expects fourth-quarter earnings of 27 cents a share,
down from previous analyst expectations of 37 cents, according
to First Call/Thomson Financial. Dan Niles, a chip analyst
a Lehman Brothers, is not worried. He says chipmakers can
easily close down plants to avoid excess capacity.
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