Chip equipment orders flattening

More confirmation on the slowdown in the chip industry.

When The Chips Are Down
A new report shows that semiconductor industry orders flat lined in July and any recovery could be fading.

A report published Thursday by Semiconductor Equipment and Materials International (SEMI), an industry trade group, showed that orders for equipment used to produce chips totaled $1.610 billion in July, up just barely from $1.609 billion in June. The book-to-bill ratio was a dismal 1.05, meaning that $105 worth of orders were received for every $100 of product billed for the month. That's down from 1.07 in June and 1.15 in February.

Investors ignored the news and shares of equipment vendors Applied Materials, Novellus and KLA-Tencor all ended higher today...KLA said orders in the current quarter could rise or fall as much as 10%...

"We think that current chip industry upcycle will be shorter and less robust than we earlier expected," says S&P analyst Amrit Tewary. Growth in 2005 should be only around 10%, he says, and 2006 will be a flat to down year. Today, Standard and Poor's lowered its 2004 earnings estimate for market leader Intel saying that the industry may be peaking.

...Thomas Weisel Partners analyst Eric Gomberg...expects any slowdown to be a modest one, not like the industry's last downturn, which occurred during the bursting Internet bubble. "In 2001 PC units were down, which had never happened before," he says. "In 2005 a number of markets may decelerate year over year, but we expect every end market to grow, which would cause it to be a shallow down cycle."

...Moors & Cabot analyst Patrick Ho says slowing orders may just be an ordinary part of the business cycle. "I think we're in a seasonal pause," he says. "We usually get some slow months in June and July."

So are the chips really down or is this just a seasonal pause? Well, one doesn't necessarily preclude the other. I suspect that demand will pick up again, but probably not at the same rate as the earlier part of the year.