Semiconductor Industry Slump May Be Bottoming

A key indicator of the semiconductor industry’s health bucked a year of monthly declines, rising slightly in January and leading some analysts to say a slump may be bottoming out.

But, while the industry’s book-to-bill ratio increased from December to January, industry experts say they don’t expect orders to begin picking up until sometime in the second quarter of this year. And pricing pressures may cause profits to decline even if sales rise.

The Semiconductor Industry Assn. reported Tuesday that the book-to-bill ratio, which compares new orders received to orders shipped, climbed to 0.66 in January from 0.58 in December.

This means that for every $100 worth of semiconductors shipped in January, chip makers received an average of $66 worth of new orders. Semiconductor chips are a key component of products ranging from computers to digital clocks.

Hit Peak in 1983

The book-to-bill ratio hit a high of 1.66, or $166 in orders for every $100 shipped, in December, 1983, and has been declining steadily ever since. That downward spiral may finally be ending, experts said.

“The situation has stabilized,” said Sheila Sandow, manager of communications for the SIA. “That’s not an upturn but, before it goes back up, it has to stabilize.”

Analysts warned that the increase from December to January does not reflect an increase in new orders but rather a decrease in shipments and a change in the way the association computed the figures.

“The sense is that bookings are staying at about the same level,” Sandow said.

And chip orders are expected to continue to stay flat for a while before creeping up again.

“Things are bottoming out now but won’t really start recovering until late in the second quarter,” said Aharon Orlansky, vice president in charge of high-technology research at Sutro & Co. in San Francisco. SIA officials agreed with the second-quarter estimate.

But Orlansky warned that “the signals are at a crossroads” and cited disappointing news this week from two big computer makers, Data General Corp. and Digital Equipment Corp., that the market for semiconductors in computers may still be soft.

Negative Developments

Data General said that earnings for the second quarter would be flat, far below previous expectations. And Digital announced that it was ceasing production of its personal-computer line.

“You can’t ignore these kinds of events,” Orlansky said.

But even if orders increase again as expected, the SIA estimated that sales of semiconductors in the United States will stay at about the $11.6-billion level registered in 1984. The 1984 figure was a big jump from the $7.8 billion in domestic sales reported in 1983.

Much of the reason that orders have been declining in the last year is that manufacturers bought so many chips in 1983 that their shelves were stocked and are only now beginning to replenish inventory, Sandow said.

But 1984’s soft orders brought on a price war that threatens profits even if sales do remain high.

Increases in orders mean more sales “but not necessarily more profits,” according to Ken McKenzie, associate director of semiconductor services for Dataquest Inc., a San Jose market research firm.

McKenzie cites the price of a single 256K random-access memory chip, used in Apple Computer Inc.’s Macintosh 512 computer. Last year, the chip sold for between $30 and $35, he said, while this year it can be bought for $14 to $15 and possibly less in high volume.

“These low prices could kill you,” McKenzie said, explaining that sales may perk up but profits could fall at many semiconductor companies.