Book-to-bill slides

Electronic News, Feb 19, 1996 by Crista Hardie

San Jose, Calif.--Although the growth rate of the semiconductor industry is generally expected to slow this year, the sharp decline of the Semiconductor Industry Association's closely-watched book-to-bill ratio to a preliminary 0.93 in January raised the specter of a market downturn.

The SIA said this is the first time in five years the ratio has dropped below the break-even 1.0 mark. Most industry observers, however, termed the numbers a short-term market correction.

There is general agreement in the industry that the culprits for the huge drop in semiconductor orders are plunging memory prices and bloated inventories. A "burn-off" of excess inventory during the second quarter is anticipated. However, at least one industry consultant predicted the book-to-bill might get worse before it gets better.

George Perris, president of Sierra Marketing Group--who last summer warned of possible over-ordering when the semiconductor book-to-bill peaked at 1.23 (EN, Aug. 14, 1995)--said last week, "I could see this thing coming. I don't think it is quite over. It would not surprise me if it goes down to 0.90 before it bottoms out."

"We believe the low book-to-bill is caused by inventory corrections, related to individual PC manufacturers and specific product evolutions," said Doug Andrey, director of industry statistical programs for the SIA, who called the situation a "temporary problem, which seems to be working its way through the market."

Although Mr. Andrey declined to name names, PC manufacturers Apple Computer and Packard Bell have recently reported excess inventories, and shifts in technology have reportedly caused an overabundance of memory chips, leading to a round of DRAM price slashing.

The SIA downplayed the sudden drop in January bookings, however, saying the demand for microelectronics continues to be strong, and sticking by its earlier projection of 29.6 percent growth for 1996 (EN, Nov. 6, 1995).

"Even though we are surprised by the 0.93 ratio, we remain confident about the long-term outlook for the global semiconductor industry," said Thomas Armstrong, SIA president.

According to the World Semiconductor Trade Statistics (WSTS), billings in the Americas set another record at $4.74 billion, 0.4 percent higher than the $4.46 billion recorded in December, and 39.5 percent higher than the $3.20 billion level for January 1995.

Semiconductor bookings declined from the $5.01 billion record level for December to $4.16 billion in January, a drop of 16.8 percent. The January bookings figure was, however, 16.3 percent higher than the $3.58 billion recorded a year earlier in January 1995.

Oversupply of DRAMs led Intel to take a recent write-off, said Intel senior VP Dave House, confirming reports that circulated when Intel earlier reported 4Q95 results were negatively affected by inventory write-downs related to purchased components (EN, Jan. 22). Mr. House said he sees a variety of factors that may have contributed to the book-to-bill decline.

"A lot of people overbuilt at the low end. People want performance. Two big guys that bet on the low end and lost were Packard Bell and Apple," Mr. House said.

Some market observers have said Intel's oversupply of DRAMs was precipitated by a reduction in demand from Packard Bell. Last fall, Intel agreed to restructure approximately $470 million in receivables from a major systems OEM (EN, Dec. 4, 1995), which is generally thought to have been Packard Bell, although neither company would confirm.

"I tend to think some of the weakness in the PC market is concentrated within a handful of unstable PC manufacturers," said Daniel Mahoney, Hitachi's product marketing manager, Semiconductor & IC Division. The result, according to Mr. Mahoney, was the unloading of between 100 million and 120 million 4M DRAM parts onto the market during 4Q95 and 1Q96.

Micron Technology's recent signing once again with Pioneer-Standard (EN, Off The Shelf, Feb. 12), which it parted company with in August 1994, is probably related to DRAMs rapidly moving from a sellers' to a buyers' market, a number of sources suggested. DRAM maker Micron is now eager to bolster its sales outlets, these sources contend.

Meanwhile, DRAM dumping has further depressed prices of DRAMs and possibly made some purchasing managers delay buying until the market stabilizes at what they hope will be an even lower price level, contributing in turn to a sharp decline in the book-to-bill ratio.

Larry Jordan, Cypress Semiconductor VP of marketing, offered his perspective. "What happened was, for most of '95, parts were in short supply and people were ordering long. Then in the October-November time frame, a number of events occurred: Intel over-ordered parts and began reselling them into the market, and they introduced their Triton II chipset, which uses only synchronous cache memory. This created an instant change in consumption patterns."

"Both events were unusual, unprecedented and no one on the supply side had accounted for them," Mr. Jordan said.

Looking back on the waning days of 1995, Drew Peck of Cowen & Co. noted, "The aberration was in November and December, when the book-to-bill was 1.12. That was obviously nonsensical. There has been a considerable slowdown, and the book-to-bill was probably below unity (1.0) in December, even November. The fact is that the industry has for several months been relatively depressed, compared to where we were last summer.