SAN JOSE -- Inconceivable as it seemed five months ago, the book-to-bill ratio for North American-based suppliers of chip production systems crashed to a new record low of 0.42 in April, based on new data from the Semiconductor Equipment and Materials International (SEMI) trade group here.
"Ouch!" responded chip equipment analyst Risto Puhakka of VLSI Research Inc. in San Jose.
Indeed, it's getting painful.
Most analysts and managers were prepared to see April's book-to-bill fall below the revised reading of 0.59 for March, but last month's drop was much steeper than expected. A reading of 0.42 means equipment suppliers were receiving only $42 in new orders for every $100 in products shipped out the door.
And now--according to a quick poll of analysts and other observers by SBN--it looks like SEMI's book-to-bill for North American suppliers will take one more step down--perhaps nudging below 0.40 in May--before flattening out this summer.
But the big question is whether or not tool orders will snap back up in the fourth quarter of 2001, and if they do, will it be as quickly as bookings turned off in the first four months of this year? The only thing that seems certain is that no one knows for sure.
"The severity and depth of this industry correction is unprecedented," said Stanley T. Myers, president and CEO of San Jose-based SEMI, which released the new book-to-bill figure late Tuesday.
The bellwether SEMI Express Report--which is a monthly "flash report" based on three-month averages for worldwide bookings and billings at North American-based suppliers--shows orders falling 41% in April to only $711.8 million from $1.204 billion in March. Equipment shipments were sequentially down 17% to $1.685 billion in April vs. $2.026 billion in March, based on the three-month moving average (see May 22 story).
"This is the darkest moment yet," observed VLSI Research's Puhakka, "but it also reminds me of July 1998, when we were all at Semicon West and people wondered if the business would ever recover. That was the lowest point, until now in new tool orders, and then the recovery began," he recalled.
Like everyone else in the industry, Puhakka asked: "If this the bottom?"
While capital equipment suppliers struggle with the current downturn--which has been called the sharpest plunge ever for the industry--they are still operating at revenues and order levels far above the 1998 recession. For example, the previous low point in SEMI's North American book-to-bill figure was recorded in September 1998 at 0.57 (see story). But the components of the September 1998 book-to-bill were far less than those making up April's 0.42 reading:
In September 1998, new orders were at just $476.4 million vs. $711.8 last month;
and,September 1998 shipments came in at 839.4 million vs. nearly $1.7 billion in April 2001.
Since November 2000, SEMI's book-to-bill ratio--along with the orders and shipment totals--has headed south. The North American supplier index was last above parity in November with a reading of 1.12 (bookings at $2.7 billion and billings at $2.4 billion), according to SEMI's final figures.
There are strong suggestions that a possible bottom to the slump could be approaching. For example, executives at Applied Materials Inc. told analysts last week that the equipment giant was expecting to see its book-to-bill ratio at 1.0 or slightly better in the current fiscal quarter, which ends in July, compared to 0.7 in the period ended April 29
(see May 16 story).
But still others are being hammered hard by the downturn--especially in backend packaging and final test equipment segments. Take for example Credence Systems Corp. of Fremont, Calif., which saw its book-to-bill fall into "negative territory" because of order cancellations (see May 17 story). The backend packaging and test segments have been hit the hardest and longest in this downturn, which began for those tool segments last summer.
In the first quarter of 2001, semiconductor manufacturers began and continued slashing their capital spending plans for wafer fabs after increasing total investments by a record 94% in 2000. Now, most analysts believe capital spending in 2001 will be 20-to-25% lower than the previous year, but that's still extremely high, considering the industry recession and weak economic conditions, according to chip analyst Bill McClean, president of IC Insights Inc.
Based on revised spending plans, only three of the world's top 10 semiconductor capital spenders are planning significant increases in their investments in 2001 vs. 2000, noted IC Insights in its May report.
Intel Corp. continues to hold steady with its record $7.5 billion budget--an increase of 12% from $6.67 billion in 2000. Infineon Technologies AG of Munich has earmarked $2.2 billion for capital spending in 2001, a 33% increase from $1.65 billion in 2000, said IC Insights. And, Micron Technology Inc. of Boise, Idaho, is planning a 20% increase in capital spending to $1.7 billion in 2001 from $1.42 billion last year, according to the summary compiled by the Scottsdale, Ariz., research firm.
"The worldwide capital spending decline expected for 2001 now standards at 20% with total spending volumes still at a hefty $48 billion," noted IC Insights' May update report. "Even with the severe semiconductor market decline in the first quarter, IC Insights does not expect total semiconductor capital spending cutbacks in 2001 to exceed 25% unless Intel makes a downward adjustment to its current expenditure plan."
And based on what Intel executives said earlier this month while mapping out 300-mm fab strategy, a significant cutback is not likely at the world's largest chip maker. Intel officials hinted of a sixth 300-mm facility that was being planned in Hillsboro, Ore. (see May 14 story).