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The Philadelphia Semiconductor Index [SOXX] peaked in January 2006 and has since fallen about 16% (though it is up from the summer lows).

click to enlarge

Not coincidentally, we would argue, January 2006 marked the point at which orders for semiconductor equipment (an indicator of future supply) began to outpace end demand for semiconductors and the summer low coincided with a turn toward capital discipline (though supply was still growing faster than demand the rate at which it was doing so started to slow down).

semi supply

Unfortunately, just when it looked as if things might be set to turn the semiconductor companies re-accelerated their pace of equipment orders over the last two months.

semi supply 1

Until orders for semiconductor equipment start growing at less than the roughly 10% growth in demand for semis, there will continue to be the brutal pricing environment we have seen recently. The decent guidance and calling of bottoms are pipe dreams.

Can we lay it out any more simply?

Source: Bad News For Semis: Equipment Orders Continue To Rise