Bob Zimmerman
One of the longstanding indicators that technology is at or near bottom has
been the book-to-bill ratio for semiconductors. This is simply a measure of the
monthly flow of new orders for chips compared to what just shipped and is now
being billed. A 1.0 ratio indicates sales equals manufacturing and foretells a
slowdown in end-product market acceptance, unless the previous book-to-bill was
lower. At the low point in this cycle, book-to-bill hovered in the 0.9 range,
indicating replacement orders were not arriving, systems houses were not
building and shipping new products, and the economy was stalled. At the peak of
the previous cycle, integrated circuit (IC) orders book-to-bill ratio peaked
well over 1.5, orders were rationed, and system houses placed the same orders
with multiple vendors merely to get any components.
SEMI, the trade journal of the semiconductor industry, reported a May
book-to-bill ratio of 1.26 vs. April’s revised figure of 1.22; this appears to
exceed expectations slightly. This indicates systems houses anticipate a strong
2003, with the turnaround starting in the fourth quarter of 2002. Even though
the growth is minimal, IC houses are now faced with an investment decision: Is
the current book-to-bill an aberration, or does it signal the bottom with an
order spurt to come? Intel and AMD both indicated they were hit by the decline
in PC sales, and AMD usually has a slow start in the third quarter. However,
Teledyne has reported stronger than-expected semiconductor test bookings,
and National Semiconductor reported 13.5 percent quarterover-quarter
revenue growth, with booking activity and outlook adding support to a view the
bottom is near. Despite this activity, the issue is whether the end markets will
materialize; on this note, worries will persist for at least the next quarter. A
GigaWorld IT Forum attendee survey conducted by SoundView Technology Group
indicated systems and storage hardware spending were in the lower third of
company priority lists for 2002. Nevertheless, chip manufacturers are now
betting on the return to strong IC growth in 2003. This reinforces our view that
the technology industry is approaching the bottom of the correction range.
Today, systems and subsystems purchasing leverage belongs to the buyer. By
mid-2003, that leverage will disappear, as the technology sector of the economy
finally recovers and pricing returns to normal. Plan your buying accordingly.