CIBC tech research sees capex drop in '07 second half

While the stock markets charge ahead, the April semiconductor book-to-bill data is out. Here is CIBC World Market’s take on it:

“Front-End Orders In Line With Applied Material’s (AMAT:NASDAQ) FQ2 (Apr), Trajectory From Here Is Down

Apr book-to-bill data reported by SEMI (an industry trade group) indicate that front-end bookings climbed +9% Q/Q, in line with AMAT’s reported sequential order increase for its core silicon systems business (+10.5% Q/Q) for its Apr-ending quarter.

Back-end (assembly/test) orders continued to improve M/M off the recent low in Jan ’07 with the inventory correction somewhat in the rear-view mirror. Back-end bookings near mid-cycle, 20% off the bottom in ’07 and 36% away from the prior high post the last inventory correction cycle.

Given a flattish capex environment in ’07 (+1% Y/Y based on our bottom-up capex database), and a flat (at best) to likely down Y/Y aggregated semi capex scenario in ’08, front-end bookings mathematically have to be on a downward trajectory over the next 2 quarters.

Given AMAT FQ3 (Jul) orders for core silicon systems are -20%+ Q/Q, the question is not “if” capex is down in 2H:07 and ’08, but “how much.” See defensive nature of recent debt offerings (MU, Hynix) and Y/Y declines in DRAM capex in ’08 as indicators to lighten up on semi cap equip.”

MRM