Chip equipment demand climbs out of Q2 hole: survey

AMSTERDAM (Reuters) - Sales and bookings of chip-making equipment slipped in August, but the industry nevertheless seems to be recovering from its second quarter weakness, a global survey found on Wednesday.

The comparison of new orders and sales, known as the book-to-bill ratio, was above 1 for the second consecutive month, meaning more new orders came in than shipments went out.

"The industry is finally pulling out of its second-quarter slump," according to United States-based research group VLSI.

Worldwide equipment bookings amounted to US$4.1 billion in August, while billings were at US$3.9 billion. The resulting book-to-bill ratio was 1.05, versus 1.01 in July.

Bookings slipped 4.5 percent below July levels and billings were 7.7 percent lower, but VLSI said this was due to a typical summer pattern in which August tends to be weaker than July.

August bookings were 51 percent higher than those of May 2005, which is the comparable month from the previous quarter.

Chip production in the run-up to Christmas when demand for electronics goods is biggest, rose faster than the manufacturing plant expansions. This has led to high capacity utilisation of 92 percent, which is seen as a "buy point" and usually triggers a surge in demand for chip production machines.

"The nagging question is whether high utilisation rates will translate into a surge in equipment orders in the fourth quarter of 2005. This is exactly what happened in 2003, which led to a 30 percent order growth in the fourth quarter," VLSI said.

"But it is doubtful that chip makers will fall in the same pattern. Utilisation typically falls off in January, so it makes sense for them to wait," it added.

Utilisation rate of production machines from the likes of ASML and Applied Materials was only around 87 percent two months ago.

ASML and Nikon, the world's two biggest makers of lithography machines which map out electronic circuits on silicon wafers, said in the last week that demand from contract chip makers in particular remained cautious despite high utilisation rates.

Utilisation rates have been steadily climbing since bottoming out in December 2004 on stronger-than-expected sales of computers and mobile phones.

The macroeconomic fundamentals, however, are not supporting a growth surge in the fourth quarter as they did in 2003, VLSI said. "We could see a sharp slowing in chip production if Christmas demand doesn't materialie. Everyone is worried about gas prices, consumer debt and the economy, which are holding back excesses."

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