Musical chairs in semiconductor capital equipment

by Jeff Dorsch, January 29th, 2008, 6:49 am

The old saying in the business is that when the electronics industry catches a cold, the semiconductor industry gets the flu, and the semiconductor capital equipment industry comes down with pneumonia.

While the stock market had conniptions about the outlooks presented by Apple and Intel — though, curiously, gave AMD hearty pats on the back after the chip maker posted a Q4 net loss of $1.8B — suppliers of semiconductor test equipment have already been in a downturn for a year, due largely to worry about whether the US economy is slipping into a recession. Teradyne’s 2007 sales were down 20% from 2006. Revenues for Credence Systems were off 7% year-to-year, and the company is cutting its workforce by 30%. Advantest had a frightening forecast for the year ahead, and its stock was battered. The small ranks within the chip tester business are getting smaller by the day — Teradyne just acquired Nextest Systems.

In the wider world of semiconductor capital equipment, these are not good times in general. Uncertain about the world economy, many chip makers are slashing their capital spending budgets for 2008. Applied Materials and Nanometrics recently imposed 7% reductions in their workforces; in Applied’s case, that meant 1,000 people losing their jobs. Lam Research is buying SEZ Holding in yet another example of industry consolidation.

The monthly book-to-bill figure put out by Semiconductor Equipment and Materials International, which reflects orders and shipments reported by North American suppliers of semiconductor equipment, pushed up a bit in December, to 0.89, after lingering between 0.79 and 0.83 during the second half of 2007. That figure represents the ratio between orders coming in (bookings) and shipments going out (billings). A figure of 1.00 generally indicates that the industry is in a healthy balance, as new orders are coming in as quickly as equipment is sold and shipped. Going above 1.00 means demand is high; below 1.00, business is slowing or bad.

Despite the economic stimulus package being pushed forward by the US government, tax rebates to American families won’t mean much for the electronics industry, unless those rebates are spent on big flat-screen TVs or other consumer electronics. There’s no magic bullet for fear, uncertainty, and doubt.