Chip, equipment industries back in recession

The semiconductor chip and equipment industries are once again in recession,

as both industries have seen their book-to-bill (b-t-b) ratios drop below the

1.0 break-even level. Other signs include announcement of delays in completing

new chip fabs, production output cuts, lay-offs and a major cost cutting program

announced by Intel.

VLSI Research, a market research company in the semiconductor and equipment

markets, said it now predicts the global IC market to grow just 1.2 per cent in

2001, down from an 11 per cent market growth forecast issued just a few months

ago. The Semiconductor Industry Association also dropped its 2001 forecast this

week from 22 per cent to just 10 per cent.

VLSI president Dan Hutcheson said the slowing economy has hurt the high-tech

sector particularly hard. "As we went through January, we began to get a

lot more of a handle on what had happened over the holidays -- the Christmas

season didn't happen. As we continued to dig, we found the problems are far

worse than we had anticipated.''

Another reason companies are buying fewer chips, Hutcheson said, is that,

many people upgraded their computers in 1999 to deal with concerns about Year

2000 computer glitches, and don't want to spend now. He added that substantial

new grow in chip sales is not expected now until 2003.

Chip companies are reacting by cutting back on production. Plant utilization

rates have dropped from 85-90 per cent in mid-2000 to around 65 per cent today.

Chipmakers are clearly trying to avoid creating a new period, of devastating

over-production that forced many chip companies to sell chips at or below

production costs in the 1996-1997 recession.

Both the lower chip growth estimates and production cut backs spell doom and

gloom for the semiconductor equipment industry which saw its b-t-b ratio plunge

to 0.81 in January. Monthly orders fell 21 per cent in January to $1.89 billion

from $2.38 billion in December. New orders were 15 per cent below the $2.2

billion posted in January 2000. Sales fell 2 per cent to $2.34 billion from

$2.40 billion in December and were 46 per cent above figures from a year ago.

"In light of uncertainty about global macroeconomic conditions, consumer

spending and average selling prices of semiconductor devices, chip makers are

exercising greater caution in their capital investments," SEMI president,

Stanley Myers, said in a statement. Applied Materials the world’s largest

chip-equipment maker, said last week it expects fiscal second-quarter sales and

earnings to fall short of Wall Street expectations because of slowing order

rates.