Issue



Subcontractor Update: Uniformly Down in Q1, Optimism Looking Ahead


07/01/2005







BY JEFFREY C. DEMMIN

The major assembly and test subcontractors started 2005 with financial results that were surprisingly uniform and generally as projected, but they were negative by most measures. Most companies were optimistic for the rest of 2005, though, with about 10% growth predicted for the second quarter.

ASE, the largest subcontractor, cooled off significantly in the first quarter of 2005. It had the largest revenue drop among the four largest subcons at 12.3%, although it was only slightly higher than the drop at SPIL and STATS ChipPAC. Even with revenue shrinking in Q1 2005, it was still up 14.5% from a year ago, which reflects the excellent year ASE had in 2004.


Figure 1. Quarterly revenue trends at the four largest assembly and test subcontractors since the beginning of 2002. For reference only, up to and including 2Q04, data for STATS ChipPAC is the sum of STATS data and ChipPAC data.
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Amkor had the smallest revenue drop among the top subcons, slipping just 7.9% compared to the fourth quarter of 2004. Amkor’s peak quarterly revenue (Q1 2004) came two quarters earlier than ASE’s or SPIL’s (Q2 2004 vs. Q4 2004), so Amkor’s slide has had a chance slow down (Figure 1). Amkor had a big loss for the quarter (Table 1), although a good portion of that was due to legal expenses. Amkor chairman and CEO James Kim had an optimistic view of 2005. The first quarter revenue was actually at the high of projections, and they see 10 to 13% growth in Q2. Kim says that the “results reflect a bottoming out of the current semiconductor industry correction.” He also predicts higher than average growth for Amkor compared to the rest of the industry in 2005 and 2006, expressing confidence in the growth initiatives begun in 2004.


Table 1. Revenue, revenue growth, and other financial metrics at the four largest assembly and test subcontractors.
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SPIL, the steadiest performer in the group, saw its quarterly revenue drop for the first time since Q1 2003. The 11.9% fall was coincidentally identical to the drop this quarter at STATS ChipPAC. SPIL’s profit stood out from the crowd, though, since they still managed to make $37.8 million, by far the best among the top subcons. SPIL’s gross margin also led the pack, at 14.8% compared to right around 10% for the other three. A factor in this achievement is likely the high utilization rates at SPIL’s factories. For packaging activities, capacity utilization was 83%, which was down from the previous quarter but still higher than the competition, which was typically in the 60 to 70% range. SPIL’s test utilization was also strong at 80%.

STATS ChipPAC was generally the middle performer in the group of top subcons. Revenue change for the quarter was the same as SPIL (down 11.9%), and the quarterly loss was between that of ASE and Amkor. Tan Lay Koon, STATS ChipPAC’s president and CEO, was perhaps the most optimistic, projecting 10 to 15% revenue growth in the second quarter. He says, “We are gaining increased confidence in our prospects for the second half of the year due to improved inventory levels, general stability in demand from a majority of our customers, and an expected return to more healthy utilization levels.”

The largest packaging and test subcons appear to have handled the downturn well. There has been no feeling of panic during the “negative growth,” and most companies believe that they are on the upswing. As shown in Figure 1, the fall in quarterly revenue from the 2004 peak for each company is actually relatively small compared to the growth leading up to it. The overall long-term trend is quite positive.

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JEFFREY C. DEMMIN, director of advanced programs, may be contacted at Tessera Technologies Inc., 3099 Orchard Dr., San Jose, CA 95134; (408) 383-3691; e-mail: jdemmin@tessera.com.