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Slowdown hits Japan fab-tool market, too

Posted: 24 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Japan market? fab tool? booking drop? IC equipment industry?

So far, most of the bad news and layoffs in the fab-tool segment are taking place in the United States. But now, Japan's equipment industry is feeling the pain. Japanese-based semiconductor equipment manufacturers posted a book-to-bill ratio of 0.81 in October, down from 0.95 in September, according to the Semiconductor Equipment Association of Japan (SEAJ).

The three-month average of worldwide bookings was 60.9 billion yen ($644.5 million) in October, down 23 percent sequentially and down 52.1 percent y-on-y, SEAJ said. While the three-month average of worldwide billings was 74.9 billion yen ($792.8 million), down 10.3 percent sequentially and down 53.8 percent year-to-year.

Japan's book-to-bill was above parity in July and August, but the numbers have fallen off the cliff. In comparison, North America-based manufacturers of IC equipment posted a book-to-bill ratio of 0.93 in October, up from 0.70 in September, according to SEMI.

A decline of 20 percent in worldwide fab equipment spending is expected for 2008, according to SEMI. For 2009, semiconductor capital spending is now projected to range from plus 5 percent to minus 10 percent, according to SEMI, which cut its prior forecast of positive 20 percent.

"We believe that these estimates, although recently revised down, are still too optimistic," said David Motozo Rubenstein, an analyst with Jefferies Japan Ltd.

"The (fab-tool) industry is damaged by latent overcapacity, a result of years of high-level spending in memory equipment," he said in a report. "Many chipmakers are financially burdened with negative cash flows and large debt levels, which contributes to the capex cuts."

Indeed, times are bad in the sector, which faces another downturn. Capital spending has grinded to a halt. And Applied Materials, Axcelis, Cognex, Entegris, FSI, Intevac, Lam, Mattson, Micronic, SemiTool, Tegal and other fab-tool makers have recently announced layoffs.

More bad news
Japan's fab-tool vendors are also suffering. An analyst maintained a rating of "underperform" on Nikon Corp., citing the company's reduction of its operating profit forecast by 37 percent for the fiscal year.

Rubenstein of Jefferies noted in a recent report that Nikon blamed foreign exchange changes and weaker-than-expected microlithography stepper orders for the revision.

On the backend, the climate is bad. Officials from Japan's Advantest Corp. recently dropped hints that the ATE market would not recover until 2010.

Meanwhile, HSBC has cut its estimates for Japan's Yokogawa Electric Corp., a supplier of test and measurement gear.

"Economic recession and cheaper oil point to a decline in demand for industrial control equipment," said Scott Foster, an analyst with HSBC. "For Yokogawa, which is making large losses on IC test equipment and other non-core businesses, this makes restructuring more urgent."

Even the LCD and solar equipment markets are down. Jefferies' Rubenstein initiated coverage of Japan's Ulvac Technologies Inc. with a "Hold" rating.

"The stock has fallen 77 percent year to date, owing to weaker than expected earnings in both LCD and semiconductor equipment," he said. "Despite this underperformance, we believe that the shares are vulnerable as the overcapacity situation in the large-size LCD panel market intensifies next year. In addition, although revenues are high growth in Ulvac's solar cell gear business, profit margins are uncertain."

It's doom-and-gloom in the LCD sector. "We believe that the imbalance in demand versus supply will continue for several quarters, which will cause red ink at panel makers and discourage them from buying new equipment," he said. "Thus, we believe that LCD capex will remain stagnant next year."

It's a mixed picture in solar equipment. "Although solar cell equipment is a hopeful earnings driver given the global push to clean energy and recent rumor of more favorable tariffs from governments of the United States and Japan," he said. "However, the solar cell gear is a low-margin business with losses (for Ulvac) last year."

- Mark LaPedus
EE Times

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