Just When Will the Semiconductor Equipment Market Turn Around?

| About: VanEck Vectors (SMH)
This article is now exclusive for PRO subscribers.

SEMI (Semiconductor Equipment and Materials International) reported last week that North America-based manufacturers of semiconductor equipment shipped about $391.9 worth of equipment in May 2009, about 1% more than April 2009, but 72% less than May 2008.

The Semiconductor Equipment Association of Japan (SEAJ) also reported last week that Japan-based manufacturers of semiconductor equipment registered billings in May 2009 of 39.2 billion yen ($409.7 million). The billings figure is 3.2 percent down from April 2009 and 68.7 percent down the May 2008 billings level.

While North American manufacturers posted a 1% increase while the Japanese manufacturers posted a 3.2% decrease in billings.

Keep in mind that North American billings numbers are “preliminary” and usually drop when the final figures are published a month ago. March billings were reported in April at $455.3 million and revised down to $438.3 million a month later. April billings were reported in May at $389.9 million and revised a month later at $385.7 million.

Pacific Crest analyst Weston Twigg last week said there will be a glut of second-hand 300 mm wafer processing equipment that will hit the market later this year. He says enough hardware is coming on the market from the Qimonda bankruptcy - and other troubled memory makers, including ProMOS and Powerchip - to produce 400,000 wafer starts a month.

The latest SICAS repot shows that in Q1 2009, 300mm capacity was 433,000 wafers starts per week. So, this excess capacity on the market represents 25% of the capacity.

Our proprietary leading indicators, which determine inflection points in economic activity and which we utilize to show turning points in semiconductor equipment sales have turned positive, indicating that an upturn in equipment sales will begin by October, not now (see below).