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Semiconductor Equipment Outlook Better, but Still Bad

Semiconductor equipment sales in North America are improving, according to industry group Semiconductor Equipment and Materials International (SEMI). That's the good news. The bad is that although investment is up, which would indicate some increasing confidence among manufacturers, it is still "near historically low levels." And global spending on fabrication plant equipment and construction is in the tank, at the lowest level in ten years.

First, the relatively good news. North American-based semiconductor equipment manufacturers saw $288.5 million in orders in May and had a book-to-bill ratio of 0.74, meaning that for every $100 of billings for the month, there were $74 in new orders. Anything below a ration of 1.00 means that the equipment part of the industry -- a pretty reliable bellwether of how chip sales are likely to do -- is seeing contracting sales over time.

That may make you wonder what is good in this news. The answer is that the market is shrinking less quickly than it was. Look at these figures from SEMI:

The low point was in January 2009, which, at 0.47, makes May's 0.74 seem absolutely ebullient in comparison. But the increase in investment is largely due to Intel's ramping up for 32nm process manufacturing.
According to the report, 19 fab facilities closed in 2008, and about 35 facilities will close in 2009, though the number of closures should decline in 2010 as only 14 facilities are expected to close. Nine fabs are expected to launch operations in 2009. Overall the trend of new facilities commencing operations has slowed since 1995, due to the fact that most new fabs are 300mm Megafabs for memory production, meaning fewer but larger fabs are needed.

Worldwide installed capacity for 2009 is expected to decline by about three percent, mainly due to fab closures, however data from the World Fab Forecast show that installed capacity for 2010 could increase by about six percent. Memory and logic fabs are expected to take the biggest hit in 2009, with a decline in installed capacity of five to seven percent each due to fab closures.

And given the continued plummet in memory prices and the continued roiling in that sub-sector, even new investment won't necessarily mean more profit for the chip companies.