Electronic Materials Industry Review

Report Highlights

INTRODUCTION

The industry searched for improvements in 2002. Indices reflect a placidness that has not been seen in years. The news covered in 2002 includes losses, litigation, consolidation, and an unusual amount of cooperation.

The book to bill (BtB) ratio from Association Connecting Electronics Industries, IPC, is fairly constant throughout the year. The market contracted alarmingly in the first half of 2002. From December to February, the monthly bookings and billings revenues lose an average of 30 to 40% sequentially. By March, however, the sequential decline in the Bookings slows to fewer than 15%, and by July, shows positive growth for the first time. Billings still continued to contract each month during the year, but sequential declines are only around 7% per month by November 2002.

While some companies reported strength, there didn't seem to be improvements across the broader market sectors. Although, toward the end of the year, more companies representing the spread among the electronics industry's material suppliers expressed relief that sequential revenue losses had slowed.

Semiconductor Equipment and Materials International's (SEMI) BtB achieves equilibrium in 2002. A review of the comments the organization sends along with its BtB report is also informative. By April, SEMI starts to talk about a "brightened outlook" in the reports that show revenues for orders for new equipment are higher than for orders shipped. By June, the monthly billings figure sets at a higher level. But when sequential bookings slow in July, SEMI loses no time in expressing its renewed question about the robustness of this recovery. Even as billings revenue is climbing sequentially, SEMI points out reductions in corporate capital spending budgets and claims poor visibility going forward. This index is its own indicator trends, and by September, the index is falling and SEMI calls the end of the cycle.

At the end of 2002, the Semiconductor Industry Association (SIA) says is knows which way sales will go in 2003. Indeed, there was slow progress in the sequential increases of IC revenues from December 2001 to November 2002. The SIA comments that sequential sales growth in wireless handsets and computers, and the ICs inside them, was in the double digits. For the less promising results at the actual start of 2002 in January, the SIA blames seasonality. The sales revenues each month rise slowly over the course of the year. Various include consumer sales, then price increases in DRAM. By June, the SIA states that the industry has pulled through. In 2002, the Asia Pacific region expands to the point where it is now the largest market for semiconductors.

Component manufacturers report that there are many new designs scheduled for production in 2003. This could be good for production materials suppliers, but the market will have to sort this out. At issue with some analysts is the current tightly managed fab utilization situation. Bringing the necessary extra capacity back online in the event of increased demand could take time. While in the interim, component prices may rise, component manufacturers say that their margins are weakening because of higher materials costs¾in this case having to do more with the conditions of the supply market. There is also price pressure from OEMs who want to protect their own margins or have already cut their manufacturing to a level of market disinterest. So, it will be exciting, indeed, to watch the industry overcome market resistance and engender the kind of revenue growth rates forecast for electronic materials in 2003.