Near-Term Chip Market Recovery Has Begun

By Robert N. Castellano, Ph.D, president of The Information Network.

Despite some problems on the horizon, rises in the book-to-bill ratio by North American and Japanese semiconductor equipment manufacturers is giving hope that the downturn has bottomed out.

Semiconductor Equipment and Materials International reported this week that North America-based manufacturers of semiconductor equipment posted $323.4 million in orders in June, on a three-month average basis, and a book-to-bill ratio of 0.77. The three-month average in June grew about 12% from $287.8 million in May, and was 69% lower than a year earlier.

Japan-based manufacturers of semiconductor equipment registered billings in May of 39.2 billion yen ($409.7 million). The billings figure is down 3.2% from April 2009 and down 68.7% from May 2008.

However, capital equipment expenditures as a percentage of semiconductor revenue have been dropping precipitously, as shown in the chart going back to 1995. In January 1995, 11.4% of revenue generated by semiconductor manufacturers was spent on new processing equipment. Forward to May 2009 and only 3.8% of semiconductor revenue was spent on equipment.

For all of 1995, 13.8% of semiconductor revenue was spent on equipment purchases. For 2007, a healthy year for the equipment market, 11.7% of semiconductor revenue was spent on equipment. For 2009, we forecast that semiconductor revenue will drop 26%, while we see semiconductor equipment revenue dropping 46%. The chart below clearly illustrates this difference. Capital equipment purchases from January through May 2009 were only 4.9% of semiconductor revenue.

Semiconductor equipment manufacturers, in an effort to gain one-upmanship in the market, have been increasing throughputs of their product. Fifteen years ago, 60 wafers per hour was the norm. Now, tools are on the market with a throughput twice that amount, meaning that only half the number of tools are needed to process the same number of wafers.

Forecast Source: theinformationnet.com