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Chip Equipment Orders Show Strength

The sector's book-to-bill ratio hits a two-year high.

Chip manufacturing equipment orders rose nearly 6% in February from the previous month, with new orders exceeding billings for the first time in nearly two years.

Total chip equipment orders totaled $1.3 billion in February, compared with $1.23 billion the month before, according to industry group Semiconductor Equipment and Materials International.

The closely watched book-to-bill ratio was 1.01 in February, meaning that $101 worth of orders were received for every $100 of product billed for the month. It was the first time the book-to-bill ratio was higher than 1.0 since August 2004. A book-to-bill ratio above 1.0 is considered a sign of strong future sales.

In January, the book-to-bill ratio was 0.97.

"Increasing booking and billing levels over the past quarter are indicative of healthy growth, as companies are investing more dollars in technology and capacity," said SEMI president Stanley Myers in a statement.

The news follows another recently released report for the semiconductor equipment industry pointing to positive trends. On Tuesday, industry research firm IC Insights raised its 2006 forecast for capital spending in the semiconductor industry. The firm said spending this year will be up 10% vs. its previous estimate of a 4% increase.

Total capital spending in the chip industry in 2006 will total $50.4 billion, according to IC Insights, the second-highest level since the $60.3 billion spent in 2000.

The report said it did not believe this increased spending would result in excessive manufacturing capacity across the chip industry. However, it cautioned that particular segments of the chip industry, specifically flash memory, could be in danger of bringing on too much equipment.

"With significant spending by new competitors (e.g. the


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joint venture -- IM Flash) coupled with aggressive spending by existing players (e.g.







), the flash memory segment appears to be at risk for overshooting its capacity requirements in late 2006 or early 2007," the report said.