The Chips Fall Where They May
The slumping computer chip industry received another dose of bad news Tuesday when the Semiconductor Industry Assn. reported that a key industry indicator, the so-called book-to-bill ratio, fell to .80 in March from an already low level of .89 in February.
Industry analysts said the decline in the book-to-bill, which measures new orders for chips, or bookings, against deliveries of completed chips, showed continued weakness in the personal computer industry--and is likely to drive many technology shares down when financial markets open today.
“We weren’t expecting to see such a large drop in March,” Charles Boucher, an analyst with Hambrecht & Quist in San Francisco, told the Associated Press. Bookings for March were $3.33 billion, a 12.5% decline from the number posted the months prior, and a 14.5% decrease from the $3.9 billion recorded in March 1995.
Two large chip companies that reported earnings Tuesday also showed disappointing results. Advanced Micro Devices, which prospered in recent years with clones of Intel Corp.’s 486 chips but has been unable to keep up with Intel’s Pentium, said its first-quarter net income fell to $25.3 million, or 18 cents a share, down from an adjusted net income in the 1995 first quarter of $84.3 million, or 66 cents per share.
Sales fell 13% to $544 million from $627 million. Wall Street expected the company to earn 32 cents a share based on the average estimate of 18 analysts surveyed by Zacks Investment Research.
At Motorola, net income increased slightly to $384 million, or 63 cents a share, from $372 million, or 61 cents, in the year-ago period. The company said results would have been unchanged from last year’s first quarter without a reduction in its tax rate to 35% from 37%. Sales rose 16% to $6.96 billion from $6.01 billion.
Industry officials and analysts said PC makers had built up too much inventory in anticipation of sales growth that never materialized--and have now stopped buying components as they work off that backlog. The Semiconductor Industry Assn. referred to the weak book-to-bill as an “inventory correction,” and noted that although U.S. demand for chips has declined, chip sales overseas remain strong.
But analysts had expected the March book-to-bill to be in the 0.88 to 0.95 range.
“The current industrywide downturn in demand for integrated circuits in the personal computer segment makes projections about future prospects problematic,” AMD chairman Jerry Sanders said in a statement.
Recently, chip makers National Semiconductor and Cirrus Logic announced layoffs that they blamed on slow PC sales, and some fear that a variety of multibillion-dollar chip-factory projects will be canceled or delayed if conditions do not improve.
Still, some industry insiders remain hopeful that PC demand will pick up before year’s end, spurred by price-cutting and hype over the Internet computer network.
“This is a slowdown in a very strong industry and not a collapse,” said one industry insider. “The orders aren’t coming in right now, but I don’t think that anyone in this industry is going to stop building fabrication [plants].
“And if you look at the want ads in the local papers, a lot of people are still hiring.”
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Book-to-Bill Blues
The ratio of bookings, or new orders, to billings for computer chips plunged in March, fueling fears of a broad-based tech slowdown.
Source: Bloomberg Business News
