SEMI Cycle Downturn Now Clear as Day

According to Semiconductor Equipment and Materials International (SEMI), North American-based manufacturers of semiconductor equipment posted $1.50 billion in orders in October 2006 (three-month average basis) and a book-to-bill ratio of 0.95 according to the October 2006 Book-to-Bill Report published today by SEMI. A book-to-bill of 0.95 means that $95 worth of orders were received for every $100 of product billed for the month.

On a year/year basis, the slowdown in both orders and sales of semiconductor manufacturing equipment is even more apparent.

Although it may seem otherwise, we view this as a positive sign for the industry. To us it means that the overcapacity issue is in the process of being corrected. While orders for new equipment are still growing faster than end demand, the gap narrowed significantly in October and at this rate could evaporate altogether as early as year-end. While it will still take a few months for inventory levels to work down, the market may well look past the worst of the fundamentals.

Disclosure: William Trent has a long position in SMH.

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