SEMI gets double dose of bad news

Electronic News, March 2, 1998 by Dylan McGrath

Mountain View, Calif.--U.S. semiconductor equipment manufacturers were hit last week with a double dose of bad news. Semiconductor Equipment & Materials International (SEMI) reported The North American semiconductor equipment industry's book-to-bill ratio for January slid to 0.94. The trade association also revealed that, due to an accounting slip-up, it had overstated 1997 shipments and bookings by $1.9 billion.

Dick Greene, principal analyst for SEMI, said the mistake will not affect 1997's book-to-bill ratio very much because both shipments and bookings were being overstated--"although the mistake did cause us to significantly overstate the size of the business that was being done," he said.

According to Mr. Greene, SEMI's accounting firm, Arthur Andersen, had been double-counting shipping and booking information from one large, undisclosed equipment vendor for some reason. SEMI caught the error during a year-end audit for 1997. Mr. Greene said, as a result of the error, SEMI will conduct more frequent audits of the numbers from now on. The details, such as how frequent is more frequent, are still being ironed out. "We have restated the numbers and we go on from there," Mr. Greene said. "We feel that good business practice requires that we run audits more often than we have. Fundamentally, though, the program is fine."

Meanwhile, SEMI said the January book-to-bill ratio slipped to 0.94. Because the revised numbers for both November 1997 and December 1997 book-to-bill ratios are 1.00, January becomes the first month the book-to-bill ratio has slipped below parity in more than one year, since November 1996. "Bookings are falling off because about 30 percent of the equipment business is done in Asia/Pacific, and those people are a little short of cash," Mr. Greene said. "I think a 0.94 is quite understandable."

January saw three-month average shipments decrease 5 percent from December 1997 to $1.5 billion. Three-month average bookings also decreased from $1.75 billion in December 1997 to $1.4 billion in January. Both three-month average bookings and shippings are significantly higher than the January 1997 levels.

"Although both shipments and bookings exceed the figures from a year ago, bookings may be starting to reflect capital spending adjustments for 1998 caused by the well-reported economic situation in Asia combined with excess DRAM capacity," Mr. Greene said. "It is important to remember, however, that memory products are less than 25 percent of the total IC market. Although chip makers may reevaluate capital spending for new capacity, purchases of advanced equipment for next-generation device technology are expected to continue, even in the DRAM business."

The SEMI book-to-bill is a ratio of three-month moving average bookings to three-month moving average shipments. A book-to-bill ratio of 0.94 means $94 in orders were received for each $100 worth of products shipped. The following numbers are the restated numbers from SEMI's year-end audit, listed in millions of U.S. dollars.

Month               Shipments      Bookings

Aug. 1997            $1,341.6     $1,431.9     1.07

Sept. 1997           $1,458.2     $1,538.4     1.05

Oct. 1997            $1,549.8     $1,583.7     1.02

Nov. 1997 (final)    $1,597.7     $1,598.6     1.00

Dec. 1997 (rev.)     $1,536.2     $1,531.2     1.00

Jan. 1998 (prelim)   $1,465.1     $1,382.1     0.94