Another low blow

Electronic News, April 15, 1996 by Sarah Cohen

San Jose, Calif.--The Semiconductor Industry Association's March book-to-bill ratio declined to 0.80 from February's revised figure of 0.89. This is the lowest book-to-bill ratio since September, 1985, according to some analysts. Still, it is not a dire forecast as much as a natural downturn after five years of unprecedented growth, most industry observers agree.

Last July, the SIA's semiconductor book-to-bill ratio reached its zenith at 1.19. This year, the book-to-bill has been below parity each month. Semiconductor billings in March increased by 22.7 percent over those recorded a year ago, but the SIA reported that the pace of new bookings slowed as 1Q came to an end.

According to World Semiconductor Trade Statistics (WSTS), billings in the North and South American markets reached $4.16 billion in March, compared with $3.39 billion in March, 1995. Semiconductor bookings in March, 1996, reached $3.33 billion. That number represents a 12.5 percent decline from the $3.81 billion in bookings recorded in February, 1996, and a 14.5 percent drop from the $3.90 billion in new orders from March, 1995.

However, sales of microprocessors skyrocketed to record heights in 1995, growing by 105 percent in Japan, 46 percent in Europe and nearly 30 percent in the North and South American markets, according to the SIA, which represents U.S. semiconductor interests. Sales for these chips should continue to surge in 1996, despite the slowdown in the U.S. market, said Doug Andrey, director of information systems and finance for the SIA.

Another spokesman for the SIA commented, "For the past five years, the American semiconductor industry has had unprecedented growth, and last year topped out at 40 percent. There's no way any industry can sustain that growth rate. We expect annual growth rates to level off at 15 or 20 percent, which is still miraculously healthy by any yardstick."

Chris Jones, analyst at In-Stat, said: "It's like we were going 75 miles an hour on the freeway. Now we're getting off, going 35 miles an hour, but we'll still get where we have to go."

Causes for the surprisingly low semiconductor book-to-bill ratio vary in the eyes of some analysts. Mark Giudici, director of semiconductor supply and pricing service at Dataquest, said: "This time around, it appears that the problem is a price decline, which we have had in the DRAM market. In 4Q95, DRAM prices were over $12. In 1Q96, DRAM dropped 30 percent to $8.55. We expect to see lowering of dollars (volume), even though units may stay the same."

Ms. Jones' view was somewhat different. "I think the problem's more pervasive than just DRAM. I think we're seeing a true softening of demand since the last quarter of last year, in particular in the PC market."

Yet representatives of the SIA and the Sierra Marketing Group are convinced the problem is excess inventory. George Perris, president of the Sierra Marketing Group, said: "I thought we'd slowly but surely work out excessive inventory, but the book-to-bill ratio was surprisingly low. This is an indication that the supply is still much, much higher than the demand."

Motorola reported a 5 percent decline in 1Q96 semiconductor orders, but an increase in semiconductor sales by 14 percent over a year ago. Motorola CEO Gary Tooker noted that the weakening demand in semiconductor markets and other factors "could cause difficult earnings comparisons with the prior year in quarters ahead" (see story, page 1).

Advanced Micro Devices is suffering under the weight of a softening circuit demand and backlog of inventory. AMD's net income dropped by 70 percent in 1Q96, from the like period last year. AMD chairman/CEO W.J. Sanders III attributed the drop in income to losses in their x86 microprocessors, an "industry-wide downturn for integrated circuits in personal computers" and an overabundance of inventory. "We do not expect an upturn in demand until those inventories have been brought down to support consumption levels," Mr. Sanders said (see story, page 1).

On the other hand, Altera and Siliconix are performing very well (see stories, page 14). Altera last week reported quarterly results up 83 percent annually and 9 percent sequentially. Altera CEO Rodney Smith said that although Altera had a $5 million backlog dilemma, and price reductions negatively influenced orders by approximately $15 million, improved availability and new products offset Altera's handicaps.

While Altera had a very positive quarterly report, the company told analysts daily orders dropped from January to March, and this information drove Altera's stock down 20 percent, to 49-1/8, on Thursday.

Siliconix' sales are up 36 percent this quarter compared with the like period last year. Siliconix CEO Richard Kulle said business was strongest in Japan and Europe, "where sales were up more than 250 percent and 28 percent, respectively, over the first quarter of 1995." Mr. Kulle added, "Since our focus in the computer market is power management in laptops, rather than the desktop sector, the recent softening of this market has not affected us as negatively as it has other companies."