Shedding the 'Subcontractor' Moniker
BY BRUCE FREYMAN
Those involved with the assembly and packaging end of semiconductor manufacturing are seeing a fundamental change in the role of a few suppliers who used to be lumped under the moniker "subcontractors." With the overall semiconductor industry turnaround firmly in hand in 2004, the outsourced semiconductor assembly and test suppliers (OSATs) have played a key role enabling the hot consumer products that have helped pull the industry out of its deep hole of the past few years. This role is fundamentally different from the classic model where assembly subcontractors were viewed simply as overflow assembly and test capacity for integrated device manufacturers (IDMs).
The emergence of major OSATs parallels the change that leading silicon foundries forged for themselves at the brink of the industry's previous downturn. Back then, silicon foundries saw their role as providing leading-edge wafer fab technology. They believed in this vision so strongly that they had the fortitude to invest in emerging technology during a downturn. The major OSAT companies had the same kind of vision and commitment during the recent downturn. During this same period, IDMs cut back their investment in new packaging technology; in some cases, in fact, they depleted their package engineering staffs.
During the downturn Amkor invested heavily in product development and manufacturing technology for flip chip, system-in-package solutions (SiPs), advanced chip scale packages (CSPs), stacked-CSPs, camera modules and other package families. Today, these are core packaging competencies for Amkor, and are at the heart of hot consumer products — DVRs, HDTVs, WLANs, PLANs, digital cameras, game controllers, DVDs, camcorders, CD players and the cell phone handset where you'll find all of these advanced packages.
There was clear evidence, even last year, that OSAT technology was playing a significant role when the industry up-tick began. Analysts now tell us that the overall semiconductor industry grew about 17 percent in 2003. But even in 2003, the OSAT end of the industry was filling up. For much of the year, utilization rates on our advanced packages were right at 100 percent, and our challenge was to keep ahead of demand in areas like flip chip, CSP, S-CSP, camera modules and high-end logic test. Going into 2004, demand for these packages continues.
This growth should continue. Industry analysts expect that the total semiconductor assembly and test market will reach $34 billion by 2006; the OSAT share of that market is forecast to grow from 25 percent now to well over 30 percent in 2006.
The fundamental change is that with OSATs carrying the industry's strength in advanced packing technology, IDMs can better focus on their core competencies in IC design. When the world needed just PDIPs and other basic packages, IDMs could handle the challenge. But today, for most IC companies that are being forced to concentrate on their strengths, advanced assembly and test are not strengths.
In addition, the model of the leading OSATs fits well with other overall industry trends: IDMs are going "asset lite" (even "staff lite") so they can be more financially agile and attractive to the investment community. There is also greater appreciation today for the fabless model of semiconductor manufacturing, which requires OSATs with advanced packaging technology.
Perhaps the most significant factors driving outsourcing of assembly and test are the transition in the way ICs are integrated at the system level and the need for increased collaboration across the supply chain. A handset manufacturer can't just design a phone, ask an IDM to make a part and then just throw it over the fence to a packaging subcontractor. Increasingly, we are finding our engineers, as packaging experts, working in the middle of parallel design efforts, linking IC manufacturers and system OEMs, to ensure that a targeted product hits its market window at the lowest possible manufacturing cost and does so without incurring unnecessary development costs. Such an effort is at the root of most of the advanced consumer products that you see on store shelves today.
So, from the viewpoint of someone who has been in the packaging industry more than 22 years, starting with an IDM where the BGA package was first conceived and was the leading edge at the time, I see the leading edge of packaging today playing straight into the hand of OSAT companies. You're going to see OSATs with a much bigger piece of the TAM as IDMs increasingly get out of advanced packaging technology and, in some cases, IC packaging altogether. In the long run, this will help to dampen the cyclical nature of our industry.
BRUCE FREYMAN, president, may be contacted at Amkor Technology Inc., 1900 S. Price Road, Chandler, AZ 85248-1604; (480) 821-5000; firstname.lastname@example.org.