Chip equipment companies feel the pinch

Orders for chip manufacturing equipment fell again in October.

Worldwide orders for chip equipment fell eight per cent to $765.7m during October, the third straight monthly decline, according to a new report by Semiconductor Equipment and Materials International (SEMI).

September orders totalled $831.6m, a decline from August's $1.02bn. Despite a spike in equipment orders earlier in the year, chip-makers appear to be hunkering down and buying less manufacturing gear.

The drop in orders brought the chip equipment industry's October book-to-bill ratio down to .73 from September's .80, said SEMI. That means for every $100 worth of equipment shipped during the October, only $73 in new orders was received. The book-to-bill ratio is a measure of relative health and a ratio of one or higher is considered good. Chips are priced in US dollars worldwide.

Chip sales have been growing slowly as the economy has attempted a recovery. But while many chip-makers such as Advanced Micro Devices, IBM and Intel are expecting better results for the fourth quarter, they are carefully watching costs and spending less on new equipment.

AMD and Intel both cut capital spending this year. Intel, which recently cut its capital expenditure budget from $5bn to $4.7bn, has been reusing some of its older equipment as it moves its older factories to newer manufacturing processes, the company said on its third quarter earnings conference call.

The equipment market is likely to get worse before it gets better. Applied Materials, one of the largest chip equipment makers, saw its orders fall 12 per cent during its fourth fiscal quarter, and it predicted a decline of 20 per cent for its current quarter.

"While there are indications that capacity has been added throughout the current downturn at leading-edge [manufacturing plants], broader-based capacity expansion has been on hold," Stanley Myers, CEO of SEMI, said in a statement. "This trend will continue into 2003 until semiconductor manufacturers have stronger signals regarding the outlook for chip demand."
Billings for chip manufacturing equipment during October totalled $1.05bn, up 1 per cent from September.

If there's any good news from the month, it's that from a year-over-year perspective, last October's equipment orders were still well above those of October 2001. Orders placed in October 2001 totalled $644m, 19 per cent lower than those placed in October 2002.

John G Spooner writes for CNET News.com.