SEMI Equipment Takes A Breather – Don’t Hold Your Breath Waiting For it to End

By William Trent, CFA of Stock Market Beat

Semiconductor Equipment and Materials International (SEMI) has released its latest semiconductor equipment bookings and billings data.

“North American semiconductor equipment bookings and billings have moderated in recent months, following a strong first half of 2006 and expected cyclic patterns,” said Stanley T. Myers, president and CEO of SEMI. “Though having slowed recently, bookings remain at levels well above those of the last slowdown in 2005.”

The slowdown in orders and billings is illustrated in the following chart.

What is particularly interesting is that billings have slowed ahead of bookings. The normal relationship is for bookings to lead billings – you can’t install equipment you haven’t ordered. The faster deceleration of billings growth shows how quickly orders are being pushed back or canceled.

According to a recent MarketWatch article:

Spending on chip-equipment, or machines used to make computer chips in consumer electronics, will slowdown in 2007 but there won’t be a “collapse in demand,” according to Gartner Inc., a technology research firm. 

“Looking ahead to 2007, we believe the capital equipment industry will take a breather as manufacturers slow their rate of expansion to allow demand to catch up,” Gartner said in a statement Wednesday.

There is one little problem with Gartner’s forecast, however. Best Buy (BBY) and Circuit City (CCS) have shown that end demand is even cooler than many industry watchers believe. With a slowdown in consumer spending on electronics looking increasingly likely for 2007, the orders will likely be pushed back further still. In other words, don’t hold your breath waiting for the industry’s “breather” to end.

The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Nasdaq 100 (QQQQ) put options; FedEx (FDX) put options; Intuit (INTU) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA); Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR) put options; Ceradyne (CRDN) put options; Dell (DELL) put options; Plantronics (PLT) put options

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