Demand for Semiconductors Falls Again

Times Staff Writer

Worldwide orders for semiconductors declined in July for the third consecutive month, a trade group reported Monday, blunting hopes for a solid recovery in the loss-plagued industry.

The Semiconductor Industry Assn. said its book-to-bill index, a measure of orders to shipments, fell to 0.97 in July. That means that manufacturers received bookings, or new orders, worth $97 for every $100 worth of goods that they shipped, or billed, during the month.

It was the first time this year that the index had fallen below 1.00, the level at which orders keep pace with shipments, and analysts said it was clear evidence that the industry's "recovery" was illusive.

"Everyone is now acknowledging that the recovery was an artifact, that it was not true," said Drew Peck, an analyst who follows semiconductor stocks for the Gartner Group in Stamford, Conn.

Peck said that in May, when the index fell back after eight months of gradual rises, industry analysts realized that "the recovery had stalled. My opinion is that it never was."

He said that distributors had been ordering great quantities of semiconductors, also called integrated circuits and computer chips, in the belief that there would be increased demand from the computer makers. That demand has failed to materialize, however, and distributors now are working off inventories.

The SIA, while continuing to believe in the industry's recovery, acknowledged the continued softness in demand.

SIA President Andrew A. Procassini blamed the July figures on summer doldrums and said in a statement: "Our industry's recovery continues to require an increase in demand for products that use semiconductors, particularly from our most important customer base--computers and office equipment."

The SIA said it is unwilling to predict the effect on the index of the recently signed U.S.-Japan semiconductor trade pact. That agreement calls for Japanese manufacturers to stop selling chips here at less that fair market value and for Japanese chip buyers to purchase more products from U.S. companies. It is widely believed that prices for some of the most-used chips will increase once the pricing provisions of the pact are implemented, and indeed, some customers already have experienced steep rises in prices of Japanese-made chips.

Analysts believe that the pact will boost the SIA's book-to-bill index next month, but they said that, too, will be an artificial increase reflecting temporary price increases for Japanese imports.

Provisions of the trade pact, however, make it likely that those price hikes will be moderated after October.

Gartner Group's Peck said that "some wild stuff is going to go on the next couple of months" as the industry, its customers and investors try to sort out the implications of the trade pact. Some companies, such as Intel, that have had deep losses during the semiconductor industry slump could return to profitability in the near future on the basis of the higher chip prices.

How long such feats could be sustained is the more difficult issue, said Peck.

In its report, the SIA said average monthly bookings for the three-month period ended in July were $696.2 million, 11.4% below the orders in June and 14.7% below the most recent high point of $816.2 million set in April. July billings of $658.4 million were a 14% drop from June.

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