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In the not-too-distant past, any piece of even remotely positive news from the chip sector sent analysts into a screaming frenzy about how the worst was over.

Times have changed. Where blind hope once was common, words of caution now (at least, sometimes) prevail. As evidence, the reaction to the latest

book-to-bill data for semiconductor-equipment companies.

The book-to-bill ratio increased to 0.81 last month from 0.77 in December, according to Semiconductor Equipment and Materials International, an industry association. That means $81 worth of new orders was received for every $100 of products billed.

As the ratio moves higher, the traditional thinking goes, the worst of a downturn is over. But according to some analysts, even with the increase in January, the forecast remains poor for semiconductor capital equipment companies, which make the testing and processing machinery for chip manufacturers, because new orders continue to be weak.

"The problem is, the ratio is increasing because shipments are getting worse, and not because orders are getting much better," said Gerard Fleming, an analyst at Fahnestock.

Book-to-bill is a ratio of three-month moving average bookings to three-month moving average billings for the North American semiconductor-equipment industry. The three-month average of worldwide orders ticked up to $636.9 million from $628.5 million in December, but that was 66% below January 2001, when bookings totaled $1.85 billion. Historically, improving orders have been considered a leading indicator for the sector.

Some analysts minimized the importance of the book-to-bill data, pointing out that the numbers are based on past data and subject to revision. Also, as a result of a new

Securities and Exchange Commission

accounting rule dealing with revenue, the latest number was computed differently, making it tougher to draw comparisons between the January and December data.

In the 1990s, the chip-equipment industry expanded dramatically, as semiconductor makers purchased gear to help them meet the increasing demands of the tech boom. But as the economy moved toward and entered a recession, chipmakers cut back on the amount of capital equipment they were buying and started making do with what they already had. Capacity utilization remains low at many foundries, with existing equipment idled to save money while demand remains tame.

"Because of the capacity issue, it's going to be a shallow recovery," said Byron Walker, an analyst at UBS Warburg. "It will be several quarters before a meaningful pickup in orders."

Semiconductor equipment stocks strengthened Wednesday afternoon, mirroring the momentum the broader market gathered, and closed higher.

Applied Materials

(AMAT) - Get Applied Materials Inc. Report

was ahead by 1.7% to $46.57, while

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was up 3% to $42.84. The Philadelphia Stock Exchange Semiconductor Index gained 1.6%.


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climbed 2.2%, and

Lam Research

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was up 0.8%.

"I think there will be significant negative earnings surprises in the future," said Fleming. "The

chip equipment stocks have held up well relative to the


market. But on a short-term basis, they're quite vulnerable."

There were two pieces of good news elsewhere in the semiconductor sector, however.

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

reaffirmed its outlook for the first quarter, saying revenue will be flat sequentially and earnings per share, excluding items, will roughly break even.


Fairchild Semiconductor


raised its first-quarter revenue guidance, citing an improvement in order rates. Texas Instruments ticked up a few pennies, but Fairchild gained more than 5%.

Analysts were cautious about projecting the good news onto the chip-equipment makers. "Even though things are picking up,

chipmakers can still utilize the capacity in place for some time," Fleming said. "It is going to be a good six months before there is a strong pickup in equipment demand."