The US chip industry’s book-to-bill ratio fell to a four-year low of 0.90 in September from the provisional 0.94, its lowest since November 1985, the Semiconductor Industry Association reports. The figure is causing less alarm than it might, because it is being explained away in substantial part by the fact that memory chip prices have been falling, with 1M dymnamics down at around $12 against $18 at the beginning of the year, with spot prices as low as $8, which as Daniel Klesken of Prudential-Bache Securities points out, pulls down the book-to-bill ration because chipmakers are billing at last month’s prices but booking at this month’s. Sales in September were $1,750m, up 17% on the August figure, but average monthly orders for the three months to September were 0.2% down on those for the three months to August at $1,150m, and the situation is being exacerbated by users running down their inventories, with many down to four weeks’ supply against 16 weeks’ last year when some parts were in short supply. But it is unlikely that inventories will ever again reach their highest levels: manufacturers are increasingly implementing just-in-time systems, and the semiconductor industry hopes that it is getting better and distinguishing genuine demand from panic buying. As for the outlook, Dr Moshe Handelsman of Advanced Forecasting, Cupertino, reckons that the regular boom-to-bust chip industry cycle will be completed in the nmiddle of next year. The cycle that began in 1985, when monthly orders emerged from a $400m bottom, and continued to a peak above $1,100m in 1988-1989, is currently declining, he says. Based on our quantitative model we expect it to reach the lowest point toward mid-1990, at $900m. Although 1990 seems to be the equivalent of the disastrous 1985, both exhibiting the downward pattern after a strong peak, they are completely different, he says. The amount of double-bookings in 1984 caused a buildup of huge inventories, as well as unnecessary investments in manufacturing capacity. Our quantitative estimates of over-bookings indicate that now, at about $300m, they are close to 33% of average monthly shipments, way below the 1984 situation where over-bookings exceeded $2,000m, more than 2.5 times average monthly shipments! As a result, he is forecasting a much less painful recession for the industry this time round.
