Tech Recovery Has Been Around for a While

In yet another sign that demand for electronic goods is strengthening, the latest book-to-bill ratio for the circuit board industry indicates that demand has stayed ahead of supply for five months in a row.

Taken by itself, the positive book-to-bill (a measure comparing orders to shipments in a given month) is generally seen as a short-term indicator, building on the excitement generated by Intel's(INTC Quote) most recent earnings announcement and surprisingly robust PC sales reports from industry analysts. But other important signals, including order data from the Department of Commerce, show that the recovery may have been well under way for some time.

According to the Commerce Department, orders for computers and other electronic products (excluding chips) have increased five months in a row. The most recent data available show that orders for electronics products increased by 2.6% sequentially to $31.5 billion in September, the largest monthly total since March 2001, when orders totaled $33.4 billion.

By contrast, orders for all durable goods in September increased just 0.8% sequentially.

Leading the recovery in electronics were medical instrumentation, which includes everything from sophisticated diagnostic tools to hearing aids and pacemakers; navigational equipment for defense; automatic controls for heating, air conditioning and refrigeration; testing equipment as well as control, display and monitoring devices for industrial facilities.

Although capital expenditures by major telecom carriers have not been strong, demand for the wireless base stations used by them has been robust, said Needham analyst John McManus.

Meanwhile, the backlog of computer and electronic products also has grown for five months and now totals $127 billion, while the backlog for all durable goods increased by 0.1% in September to $490.7 billion, after dropping by 0.8% in August.

The buildup in back orders confirms the strength of tech demand, said Steven Milunovich, technology strategist for Merrill Lynch. Tech inventories also are down, he said, suggesting that the increase in shipments represent real demand and not a build in inventory.