Demand for chip-making equipment nosedives

Semiconductor manufacturing equipment sales are about to take a dramatic dip as high-tech inventory levels back up the supply chain. The value of new orders received by U.S. makers of semiconductor manufacturing equipment during February, March and April this year was far lower than the value of products shipped during that period, according to the trade association Semiconductor Equipment and Materials International (SEMI).

Worldwide orders for semiconductor equipment were valued at an average of US$711.8 million per month during the three months, SEMI said in a statement Thursday. The three-month average of worldwide shipments for the period was valued at $1.68 billion.

SEMI also reported a book-to-bill ratio of 0.42 for April 2001 -- meaning that only $42 worth of new orders were taken for every $100 worth of products shipped. This is the lowest book-to-bill ratio this decade, and was caused mainly by the number of order cancellations, according to SEMI.

The PC market has stalled: manufacturers are holding large inventories and not buying enough from semiconductor manufacturers, and this has pushed the large inventory levels further up the supply chain, said Andrew Norwood, senior analyst in Dataquest Inc.'s semiconductor group in London. Dataquest is a wholly-owned company of Garter Group Inc.

"Due to the economic slowdown, companies are saying to their employees that they are not going to upgrade their systems every two to three years, but every three to four years," Norwood said.

While previous waves of upgrades have been driven by the increasing power of desktop PCs, "There is no new software out there that's processor hungry or memory hungry," he said. "People can use their Excel or word processor programs easily on a PC they bought three years ago."

"It's only high end CAD/CAM people who need to rush out and buy a Pentium 4," he said. CAD (computer aided design) and CAM (computer aided manufacturing) software is used by architects, engineers, designers and others to create technical illustrations.

Dataquest forecasts that the worldwide market for semiconductors will be worth $188 billion this year, a decline of 16.7 percent from last year's $226 billion.