Book-bill rises to 1.15

Electronic News, Dec 16, 1996 by Jim DeTar

San Jose, Calif.--The book-to-bill ratio for the Americas market--which represents one-third of the global semiconductor industry--rose to 1.15 in November as the industry continued to recover from earlier this year, the Semiconductor Industry Association (SIA) reported last week.

When asked whether this may be an indication of a healthy holiday buying season in terms of PCs and electronic devices, Doug Andrey, SIA director of information systems and finance, was coy in his reply, saying that "It's too early to tell." Mr. Andrey refused to elaborate.

November's preliminary book-to-bill is the highest ratio since October 1995, when the ratio was 1.16. Compared with the sales figures of October 1996, new orders (bookings) increased by $235.2 million in November, while billings for prior shipments increased by $96.3 million.

These numbers translate to a 6.3 percent increase in bookings and a 2.9 percent increase in billings in November, according to data compiled by World Semiconductor Trade Statistics, a worldwide organization of approximately 70 chip manufacturers.

John J. Lazlo, senior analyst at PaineWebber, commented: "The industry transition from a downturn to an upturn is proceeding more swiftly than we expected, owing principally to the completion of year-long inventory reductions.

"Excess inventories of semiconductors that were accumulated during a period of tight supply late last year were largely liquidated during the last several months, so that the inventory level now reflects true demand. In addition, PC demand looks to be stronger than we anticipated during the fourth quarter. Furthermore, the minimum DRAM configuration for a Pentium-based PC doubled to 16 megabytes earlier this year, and many systems are being configured with 24-32 megabytes of main memory."

Similarly, Mark Giudici, director and principal analyst for semiconductor supply and pricing at the Dataquest market research firm, commented: "What we have been seeing for three months is steady growth in the PC market in unit growth. With falling pricing on the microprocessor end, you will see a relatively higher revenue trend from a billing standpoint. On the memory side, we have seen a continued slowdown in the price decline. If you have slowing price on one side, flat pricing on the other and steady demand, you are going to see relatively healthy billings and bookings."

Mr. Giudici said this bodes well for the holiday selling season. "It appears that way. It is a relatively healthy one for most of the electronic companies I have seen. On the chip side, with prices controllable or better understood from a trend point, they can make better decisions relative to inventories for the first of the year."

He noted that some OEMs have been complaining of spot price increases, perhaps due to tighter inventory, but said he doesn't think it will have significant impact moving forward. "We have been hearing of spot price increases in the microprocessor arena. The question is, what is this doing to the overall market. It may have some impact on the book-to-bill, but as a percentage of the market it is so small relative to the overall market I don't think it has a major impact. Availability (of microprocessors) will remain good for the next six months."

"Given all that has happened in 1996, it's best to use caution in evaluating these numbers," SIA's Mr. Andrey said. "But they are undeniably the best marks we've seen for the Americas market all year. The third-quarter doldrums are behind us."

The low mark for new bookings this year occurred in July, when orders leveled off at $2.81 billion. Last month, bookings reached $3.96 billion, a $1.14 billion increase from July. Billings bottomed out in August at $3.16 billion, and November's billings were $3.44 billion, or $282 million more than August.

The bookings and billings figures for October, meanwhile, were $3.34 billion and $3.73 billion respectively. In addition to announcing November's sales figures, the WSTS revised October's book-to-bill ratio for the Americas market from 1.10 to 1.11. Worldwide, the book-to-bill for October was 1.09.

In January, the SIA will replace the current book-to-bill program with a new statistical report--known as the Global Billings Report--to increase and broaden economic coverage of the chip industry. This report will provide sales information about all four major global markets and include monthly and annual comparisons. The final book-to-bill, covering December 1996 numbers, will be published around Jan. 10.

Meanwhile, November represents the fourth consecutive month of real increases in bookings and the third straight month of increases in billings. It is also the second month in 1996 when the ratio exceeded 1.0.

"While representative of positive trends, November's numbers are modest when compared to the record boom year of 1995," the SIA noted. "Last month's bookings were 19.4 percent below the $4.92 billion total of November 1995. Last month's billings, similarly, were 20.7 percent below the $4.34 billion mark of a year ago."