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Are semiconductor shipments a leading indicator of tech strength?

In looking at the recent Durable Goods report at http://www.economicindicators.gov/ it was striking to see that shipments for semiconductors were up over 25% from March to April.

Given that electronics manufacturers need to acquire semiconductors before they can assemble and ship their products, it is reasonable to assume that semiconductor shipments are a leading indicator of electronics manufacturing. To be more precise, semiconductor shipments would be a leading indicator of electronics manufacturing sales expectations.

On the surface, the 25% increase in semiconductor shipments appears to be very bullish. April 2008 shipments compared to April 2007 shipments, however, show a drop of more than 13.5% year-over-year. On a year-to-date basis, semiconductor shipments show a 7.9% drop in 2008 compared to 2007.

Looking at the year-to-date numbers for shipments for the other components of the Computers and Electronic Products sector, we see that there have been small percentage increases for both the Computers & Related Products sub-sector and the Communications Equipment sub-sector.

On a month-to-month basis, however, the Computers & Related Products sub-sector and the Communications Equipment sub-sector have both seen flat or declining shipments as 2008 has progressed.

All told, shipments data implies that electronics manufacturing is holding its own but not showing much growth.

What about unfilled orders as a forward indicator?

This information is not provided for semiconductors. It is, however, provided for the overall Computers and Electronic Products sector and also for the Computers & Related Products sub-sector and the Communications Equipment sub-sector. Yet it seems that the increase in unfilled orders in each of these categories is quite slim.

Interestingly, the SIA April Sales report indicates that semiconductor sales in the Americas increased only 1.3% over the March number. I would have expected to see a stronger correlation between sales (per the SIA report) and shipments (per the Durable Goods report). Instead, semiconductor sales according to SIA seem to be much more in the range of the Computers and Electronic Products shipments and unfilled orders numbers from the Durable Goods report.

Conclusion --

If it is true that semiconductor shipments are a leading indicator it appears that electronics manufacturers must have extremely positive outlooks for the second half of 2008.

Still, that 25% growth in semiconductor shipments seems to be the only number available that reflects that kind of bullishness. I am troubled that it is not confirmed by the SIA report.

Perhaps it is too early in the year for unfilled orders or the SIA sales numbers to reflect second half growth. On the other hand, perhaps that growth is going to prove elusive.

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