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Fall in Chip Orders May Hit Street Hard

Computers: Drop in July book-to-bill ratio could reignite sell-off in techs, analysts say.

August 09, 1996|From Bloomberg Business News

SAN JOSE — Demand for computer chips fell in July, which analysts said could push down prices of semiconductor stocks today as a seven-month industry slowdown deepens.

The Semiconductor Industry Assn. said its book-to-bill ratio, which measures new orders against billings, fell to 0.85 from a revised 0.88 in June. The San Jose-based group previously reported the June ratio at 0.91.

If the ratio is higher than 1, it indicates that the chip industry is expanding because new orders exceed past sales. If the number is less than 1, it indicates stagnating or declining growth.

"Wall Street is going to be unhappy. There's no bullish analyst who can possibly pull anything good out of this," said Daniel Niles, who tracks the semiconductor industry for Robertson, Stephens & Co.

Todd Greenberg, a trader at Churchill Capital Management, a San Francisco-based hedge fund, suggested that the report could also spark a decline in the broader market.

"The tech stocks led the market up and led it back down, then led a bear market rally. If this number is interpreted negatively, it may be the match that reignites the kindling," he said.

The preliminary figures for July show bookings among U.S. chip makers fell to $2.81 billion, a 38% drop from a year ago. Billings were a "sluggish" $3.3 billion in July, 13% below the year-ago figure.

Niles said the report is particularly troublesome because the revised figures show that new orders declined in June to $2.96 billion from $3.09 billion in May. Last month, the association issued preliminary figures showing that orders rose in June to $3.11 billion.

"That's why everybody's going to be really annoyed," Niles said. "And now the July bookings have come in, and they're also down from June."

Chip prices have plummeted as more manufacturing capacity came online as demand started to slacken. Personal computer makers delayed or canceled orders in the first several months of this year as they tried to reduce inventory and prepare for new models.

The Philadelphia Semiconductor Index, which includes 16 major chip-making companies, closed down 2.52 points at 176.09 on Thursday shortly before the association released its report. The index peaked at 303.85 on Sept. 12.

The slowdown that began in January is starting to have an effect on employment levels in Silicon Valley.

Earlier Thursday, IMP Inc., a San Jose-based chip maker, said it plans to eliminate 51 jobs, or about 11% of its work force, because of lower demand for chips.

"The general softness in the market has started to have an impact on our future business," IMP Chief Executive David Lane said.

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