IC ratio setback

Electronic News, August 12, 1996 by Crista Hardie

San Jose, Calif.--After a minor uptick in chip orders during June, continued price declines and slow sales in July sent the semiconductor book-to-bill ratio on a downward track once again.

Both orders and shipments slipped last month, according to the Semiconductor Industry Association (SIA). The group reported the book-to-bill ratio in the Americas dipped to 0.85 in July, while June's somewhat inflated 0.91 was revised to 0.88. Worldwide, chip sales were not much better, with a 0.93 ratio reported for June.

The July book-to-bill indicates semiconductor companies received 85 cents worth of new chip orders for every $1 of product shipped. The ratio has remained below parity since January, indicating a stagnant chip market. As a result, chipmakers--which last year put billions of dollars into manufacturing expansions--have been forced to scale back production and employees (see page 14).

In contrast, new orders a year ago outpaced sales by as much as 20 percent, although analysts said that was an unusually high growth rate for summer.

Mark Giudici of Dataquest said activities in July were more on a historically normal scale, and could indicate a return to a traditional cycle of slow summer sales, with a Christmas build-up starting in the fall.

Paine Webber semiconductor analyst John Lazlo agreed. "Bookings should begin to pick up toward the end of August and throughout September as back-to-school sales of Pentium-based PCs will spur order growth," he said. In keeping with earlier reports, billings are expected to bottom-out in 3Q96 (EN, July 15).

Nevertheless, at distributor Nu Horizons, marketing VP Ben Schwartz said the July book-to-bill was "kind of disappointing. I thought the worst was behind us," adding the latest industry decline "is not reflective of our business."

According to SIA, new orders for chips in July declined 5.1 percent to $2.81 billion from a reported $2.96 billion in June--a drop of nearly 38 percent from a year ago when orders totalled $4.51 billion. Julybillings were $3.3 billion, dipping 1.5 percent from billings of $3.35 billion in June, and 13.1 percent below the prior year's sales.

While unit production continued to climb last month, lower average selling prices caused reported sales figures to weaken. Downward pricing pressure continued across all semiconductor segments, but was particularly harsh in fast page mode DRAMs, Mr.Giudici said.

"We're still seeing a build-up of inventory at selected suppliers causing spot market prices to decline, which in turn affects contract prices," he said.

Lower DRAM prices and short leadtimes eliminated the need to place orders, except for immediate consumption, Mr. Lazlo explained. In the spot market, on average, four-megabit DRAMs wereselling for about $2.45--less than what it cost manufacturers tomake them--while 16-meg chips broke about even at $10.

Ratios for the last 13 months were as follows:

July 96(prelim)     0.85
June 96(revised)    0.88
May 96              0.83
Apr. 96             0.81
Mar. 96             0.79
Feb. 96             0.89
Jan. 96             0.92
Dec. 95             1.12
Nov. 95             1.13
Oct. 95             1.16
Sep. 95             1.16
Aug. 95             1.16
July 95             1.19