Backend Capacity Crunch Propels ATE, Assembly Equipment
By Mark LaPedus
Silicon Strategies
03/19/2004, 2:50 PM ET
Silicon Strategies
siliconstrategies.com
SAN JOSE, Calif.--Demand for chip-packaging and testing services continues to climb amid the current IC up cycle, causing capacity constraints and possible product shortages in the arena.
The backend capacity crunch has also prompted IC-assembly providers to boost their capital spending plans for 2004--a move that benefits and propels suppliers of assembly and test equipment. For example, Advantest, Agilent, Credence, LTX, Teradyne and other suppliers of automatic test equipment (ATE) are reporting brisk demand for their machines in the marketplace right now.
Indeed, the overall backend part of the semiconductor food chain has seen a slow and modest recovery over the past two years, but now, the sector can barely keep up with huge OEM demand. "The backend had been an afterthought, but now, it's a limiting factor," said analyst Jim Walker, who watches the market for Gartner/Dataquest Inc. in San Jose.
"I wouldn't say that we're seeing shortages (in chip-packaging), but I would say capacity is very tight," Walker said. "This, of course, depends on the product line."
"While investors fret about the business outlook in the 2H04, there is little evidence to support weakening fundamentals looming on the horizon (in backend services like chip-packaging and testing)," said Bill Ong, an analyst with American Technology Research Inc. in San Francisco, in a report issued this week.
"Our recent checks among several Asian back-end service providers continue to suggest sustainable, high utilization rates even with added capacity on both the assembly and test fronts," Ong said. "Assembly utilization rates are running about 80 percent across several Asian subcontractors. Testers are also experiencing strong utilization rates at the back-end service providers, which we believe could result in healthy orders in the March quarter after an already blowout December quarter as a result of pent-up demand."
One of the key drivers has become quite apparent in the backend--wireless. For example, Amkor Technology Inc., one of the world's largest providers of chip-packaging and testing services, "is tracking better than plan in a typical seasonally down quarter that is likely to exceed our 3 percent sequential sales growth forecast slightly for the March quarter," Ong said. "Demand remains healthy on RF and mixed signal applications from ongoing cell phone strength."
Amid a plan to boost its capital spending, Amkor in January reported fourth quarter sales of $459 million, up 8 percent sequentially and up 23 percent over the fourth quarter of 2002. Amkor's fourth quarter net income was $23 million, or $0.13 per share, compared with a loss of $196 million, or minus $1.19, per share, in the fourth quarter of 2002.
Wireless, especially digital signal processing (DSP) applications, is also helping to drive ATE demand. "In general, DSP applications have been good for us," said Neil Kelly, chief technology officer of LTX Corp., a Westwood, Mass.-based supplier of ATE.
"Wireless is strong," Kelly said. "We also see demand in DSL and cable modems. Mixed-signal and automotive have also done reasonably well," he told Silicon Strategies..
Meanwhile, ASE, ChipPAC, Siliconware, STATs, and other chip-packaging houses are seeing strong demand, prompting them to separately boost their capital spending on both the assembly and test fronts. This, in turn, will benefit suppliers of assembly and test equipment.
"While there remains the usual adjustment in the timing of wire bonder orders among the various back-end service providers, the net result appears to be greater pull-in into the March quarter increasing our conviction that Kulicke & Soffa is likely to have a olid quarter with some upside," Ong said.
Testers are also experiencing strong utilization rates at the back-end service providers. "Therefore, we have confidence that Teradyne should show some upside from our current $415 million in sales in the March quarter," he said.
Indeed, ATE is making a comeback after experiencing a horrific period in the last downturn. In 2004, ATE is projected to hit $3.45 billion, a 46.4 percent growth rate over 2003, according to Gartner/Dataquest. In 2003, ATE reached $2.356 billion, up 8.7 percent over 2002, according to the research firm.
"The ATE industry is on the upswing, but it is still extremely cost conscious," said analyst Laurie Balch, who watches the market for Gartner/Dataquest. "Throughout the downturn, second-hand equipment and older equipment continued to sell pretty well. But leading edge equipment, as it usually does, is going to drive the ATE market recovery," Balch said.
"We have begun to see the subcontractors increasing their spending on ATE over the past two years, which is another indicator of recovery," she said. "The way the downturn played out, first IDMs pulled back on ATE spending and then subcontractors followed. The IDMs slowly have ramped back at least some of their ATE spending and now subcontractors are doing the same."
... |
