The semiconductor equipment sector’s book-to-bill ratio dropped below parity level last month, but one glimmer of hope is that continued investment by wafer foundries and flash memory makers would bode well for the industry going forward.
The book-to-bill ratio is the three-month moving averages of worldwide bookings and billings for North American-based semiconductor equipment manufacturers. It measures new orders against products sold each month, with a ratio of less than on showing weakness, while a ratio greater than one indicates strong demand.
“The SEMI book-to-bill ratio slipped below parity as the three-month average bookings declined in August,” Semiconductor Equipment and Materials International (SEMI) president and chief executive officer Denny McGuirk said in a press release on Thursday.
The San Jose, California-based SEMI is a global trade association that represents the semiconductor and flat-panel display equipment and materials industries, such as Applied Materials Inc.
“While some investment activity may be slowing, we see spending by foundries and flash memory suppliers to be key drivers for investments for the remainder of the year and into 2014,” McGuirk said.
From January through June, the ratios had been above 1, meaning more orders coming in than products being sold each month. However, according to the semiconductor industry tracker’s latest report, last month’s ratio moderated to 0.98, the lowest level in the past eight months, from 1 in July.
SEMI’s data showed orders last month dropped 11.9 percent to US$1.06 billion from July and were the lowest since April, when they recorded US$1.17 billion. Year-on-year, last month’s figure fell 2.7 percent. Meanwhile, billings totaled US$1.081 billion last month, down 10.1 percent month-on-month and 18.7 percent year-on-year.
“The semiconductor industry is entering the traditional low season,” SinoPac Securities Corp (永豐金證券) said in a note ahead of the release of SEMI’s book-to-bill data. “The declining orders indicate that semiconductor companies have started lowering their capital expenditures while adjusting their inventories.”
The semiconductor industry is expecting brand-name clients to start building up their inventories in a bid to meet an expected buying spree during the upcoming Chinese long holiday next month, and therefore lead to a potential upside for their third-quarter revenue.
However, SinoPac said the odds for semiconductor firms to increase their capital spending remain low, given uncertainty over end-product demand.
Even so, Credit Suisse Securities (Japan) Ltd said in its latest industry report, released on Thursday, that it expects the “front-end” equipment orders to improve as Taiwanese foundries invest in new capacity in 20 nanometer (nm) and 16nm process lines, and South Korean NAND flash makers begin investing in next-generation technologies (3D NAND) from this month.
Front-end equipment includes facilities used in wafer processing, fabrication and automation, as well as those for masking and wafer manufacturing, while back-end category refers to testing and process diagnostic equipment, as well as assembly and packaging ones.
“With the investment cycle for leading-edge foundry logic process for 2014 around the corner, we expect to see continued positive momentum in the orders environment for semiconductor production equipment makers through first half of 2014,” Credit Suisse analysts Hideyuki Maekawa and Akinori Kanemoto wrote.
Nonetheless, they said semiconductor firms have become much more downbeat on back-end equipment investment and predicted that Taiwanese firms in this line of business will resume investment from early next year.
“[Back-end] manufacturers appear to have cut investment in logic testers for application processors supplied to high-end smartphone makers and Chinese low-end smartphone companies,” they wrote.