Depressed Chip ASPs Affect Entire Supply Chain
By Jeff Chappell -- 7/14/2003
Electronic News
With Semicon West 2003 here, the big question on everyone's mind above all else will be the same as it has been for the past two years: When is the recovery getting here?
Last year there were many signs that the industry was at the beginning of an upturn, only to have markets take a nosedive yet again, with many analysts in hindsight describing it as a double dip. This year, backend equipment suppliers are seeing order growth and many have for two quarters now, as activity has increased at test, assembly and packaging providers along with chip unit volume growth.
Fab capacity and equipment utilization rates are also climbing, and Wall Street is bullish -- some even going so far as to declare that the industry has reached a trough and that a corresponding upturn will likely begin within the second half of this year. But on the eve of Semicon West, equipment suppliers are reluctant to say an upturn has come. Perhaps it is only natural for companies all along the supply chain to be skittish after three years of fits, false starts and forecasts, and declarations of industry maturity.
But is more than that. In terms of the number of chips being moved, the upturn is already here. In fact, market research company IC Insights Inc. is forecasting that unit volumes in 2003 will surpass the all-time high set in the anomalous year 2000. But semiconductor revenues lag far behind the records set in that fabulous and anomalous year.
Call it the average selling price (ASP) ripple effect. With chip ASPs still down after three years, the effects of that are being felt throughout the entire supply chain, as chipmakers are being much more conservative with their capital, even as utilization rates grow. Having to sit on underutilized assets purchased during the buying frenzy of late 1999 and 2000 has made buyers cautious.
Lower Chip ASPs are the Mother of Invention
"With all the uncertainty, I don't think anybody is anxious to get overly optimistic," remarked Dave Ranhoff, president and COO at ATE vendor Credence Systems Corp. He noted that Credence guided orders up 10 percent sequentially during its last quarterly earnings conference call, but like everyone else, couldn't provide guidance beyond the current quarter.
"We're not yet certain if it's a general recovery or some spot areas," Ranhoff said. "That's why we're still guarded."
The situation is similar for front-end equipment vendors, as well. Wet bench supplier Akrion LLC has performed better than most during the downturn, actually growing in size and revenue. "We've had a pretty prosperous year," remarked Jim Molinaro, Akrion president, noting that revenues are up 50 percent over the prior year.
But like Ranhoff also observed, Molinaro said that customers are buying a few systems at a time. The big orders still aren't coming in. "No one is placing an order for 20 units," he said.
In the past, when utilization rates would hit 80 percent or higher, chipmakers would typically start making volume orders, Ranhoff said. "Today we're seeing several customers in that range … or above, but very cautious in releasing orders," he explained.
It is the same for Akrion. The wet clean supplier is seeing 95 percent utilization rates for its wet stations at some customers, and yet they are still reluctant to add capacity. "The customers are eking out every dollar they can out of their existing tool sets," he added. "You can't do much when your chips are selling for 30 or 40 percent less."
"Certainly in the unit volumes, the business is there, it's the ASPs I think … that have fallen a little bit faster than what suppliers would like," agreed Jim Hermanowski, director of North American marketing for Suss Microtec. Suss is a Munich, Germany-based supplier of lithography equipment for advanced packaging applications, such as wafer level and flip chip packaging.
In packaging, margins have become even thinner, and things like cost of ownership and throughput have become even more critical in these tough times, Hermanowski noted. In today's business climate, customers are really thinking hard about what they need to get the job done, as opposed to just automatically ordering more equipment as utilization rates increase and capacity tightens.
The amount of work that has gone into optimization of existing toolsets has been incredible, and it has helped keep capital expenditures down, observed Ashok Belani, CEO of ATE supplier NPTest. Of course, when a real general upturn arrives, and semiconductor companies start to see revenues rise, the opposite phenomena occurs, which is what equipment suppliers have been waiting for, for years now.
But it all comes down to chip ASPs "That's a real question. I don't think the answer is obvious to anybody yet," Belani suggested.
So Just When Will Chipmakers Buy, and How Much?
Chipmakers are cautious about the current unit growth, worried that it may be inventory replenishment or a seasonal blip, suggested Dean Freeman, a principal analyst with market research company Gartner Dataquest. As a result, chipmakers are going to wait until they are at full capacity before buying equipment, in many cases. "I think you're going to see a blip in equipment orders sometime in the Q4 time frame, maybe Q3," he suggested.
Dataquest just updated its forecast, suggesting that no big overall gains are going to take place within the chip industry in terms of capital spending and revenue growth throughout the supply chain until 2004.
While some large IDMs, such as memory maker Samsung and DSP supplier Texas Instruments, are going ahead with large capital spending plans because they either see the need for future capacity in several years or are concerned with being able to maintain market share, many chipmakers may add capacity incrementally, Freeman suggested.
That may be particularly true for IDMs and foundries that have made the jump to 300mm equipment. The conversion to the larger wafer size provides such a boost in capacity, that incremental equipment additions to an existing fabline can add a few thousand wafer starts a months, and this may be enough to tide many over for several months at a time, Freeman said.
"Initially it looks like it's going to be better managed," Freeman said of capacity expansion in the near future. "Companies look like they are waiting until the last minute to place equipment orders." This could in turn give rise to larger lead times for equipment orders, which could prompt equipment ASPs to firm up, he added.
Of course, Dataquest pointed out in its updated forecast, this is all predicated on the assumption that the U.S. and global economies continue to improve.
[Harry: It has been reported that utilization rates were above 70 for some fabs, but I was unaware that some companies were seeing 85 percent utilization rates.Still need confirmation.] |
