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Thursday, July 13, 2006

Worse Than We Thought

By William Trent, CFA of Stock Market Beat

We have been concerned by the fact that semiconductor equipment orders are rising at a much faster rate than sale of semiconductors. Our reasoning is that the equipment will be used to make more semis, despite the fact that there are already signs of a glut. This, in turn, will lead to massive inventories and decimate pricing.

Well, it turns out that the picture is even worse than we were figuring. We were using data from the US-based Semiconductor Equipment and Materials International (SEMI) that reported orders for equipment rising more than 60 percent year/year. (The growth in semi demand is less than 10 percent.) Now the Semiconductor Equipment Association of Japan (SEAJ) has compiled its global data (in conjunction with SEMI) that shows that orders actually rose more than 70 percent.

Higher orders may sound like a good thing, but as we pointed out yesterday the end result is ugly.

Global chip equipment May sales +20.2 pct yr/yr

Global sales of chip-making equipment in May posted the highest percentage growth in 17 months and demand is expected to stay firm in the coming months, an industry group said on Thursday.

Worldwide sales of tools used to make microchips came to $2.4 billion in May, up 20.2 percent from a year earlier, the Semiconductor Equipment Association of Japan (SEAJ) said.

Consumers’ robust appetite for mobile phones, personal computers and flat televisions is driving up demand for microchips that go into those products, prompting chip makers to boost production capacity.

The SEAJ compiles the monthly data with another industry group, California-based Semiconductor Equipment and Materials International (SEMI).

An SEAJ spokesman said global orders in May rose more than 70 percent from a year earlier.

Emphais ours above.

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