1/25/2010
By Carlos Guillen, Semiconductor Analyst

So far all signs continue to indicate that the semiconductor capital equipment industry will demonstrate strong revenue growth in 2010.

Providing further support of strong expected growth, iSuppli most recently indicated that it expects global spending on semiconductor manufacturing equipment to rise by 46.8% in 2010 from 2009 levels. Also corroborating the notion that a recovery in the semiconductor industry is well on its way, according to data from SEMI, billings continued to trend higher for the eighth consecutive month, and bookings also ticked higher. The book-to-bill ratio also remained above parity for the sixth consecutive month; however, it inched lower sequentially. Nonetheless, the positive momentum in the semiconductor industry should continue as end-demand is now becoming a stronger component of the recovery.

Given the most recent data from SEMI, the trailing three-month average billings in December totaled $842 million. This monthly result increased approximately 13.2% from the level achieved in the prior month and increased 25.3% from the year-ago level. I expect first quarter 2010 billings to rise sequentially by 21.6%. I also estimate that American billings in 2010 will total $12.3 billion, increasing 72.5% from the $7.12 billion achieved in 2009.

The three month average bookings in December were also encouraging and totaled $863 million, not only continuing to increase sequentially by 9.03% but also rising above the year ago level by 49.1%. This positive result continues to provide more support that a semiconductor recovery is well on its way. Looking at the second half of 2010, I believe the memory industry should kick in and begin to ramp up some capacity, which will provide more upside to billings. I expect first quarter bookings to rise sequentially by 13.3%, leading American bookings in 2010 to a total of $11.9 billion, increasing 78.2% from the $6.65 billion achieved in 2009.

In December, the overall book-to-bill ratio continued at above parity for the sixth consecutive month at 1.03, demonstrating that demand is stronger than supply. However, that fact that billings grew at a faster pace than bookings caused the book-to-bill ratio to decline slightly from 1.06 sequentially.

It is apparent that as original design manufactures improve their utilization rates they will look to expand capacity, particularly for new technologies. For instance, Intel has recently announced that it expects to increase its capital expenditures to $4.8 billion in 2010, after spending $4.5 billion in 2009. Inventory levels have also been maintained extremely lean and will likely be strengthened in 2010.

On the memory front, there is still plenty of capacity to satisfy demand. However, technology builds at the smaller nodes should also provide growth for semiconductor capital equipment revenues in 2010.

Carlos Guillen
Wall Street Strategies