Subcontractor Update: Caution Justified
The major assembly and test subcontractors were cautious in their projections for the third quarter of 2004, and the caution turned out to be justified, with revenue figures ranging from small growth to significant drops. One statistic that stood out is that the large, Taiwan-based companies - ASE, SPIL, and ChipMOS - remained profitable, while the others saw red ink for the quarter.
ASE and SPIL continued upward with modest growth, Amkor was just short of flat, and STATS ChipPAC and ChipMOS fell noticeably. As shown in Table 1, though, most indicators break in favor of the three Taiwanese companies. The best year-to-year revenue growth, quarterly profit, and quarterly gross margin were found at ASE, SPIL, and ChipMOS.
ASE continued its surge well into the lead with the highest quarterly growth among the largest subcontractors. According to ASE chairman Jason Chang, maintaining the growth was more challenging than usual, saying “Despite the disruption on our operations in Taiwan as a result of the typhoon, we still managed to end the third quarter with respectable growth rate and reached a new high in revenue.” One outcome of ASE’s growth is the ability to outspend the competition, as shown in the comparison of capital expenditure. Perhaps one of the secrets to ASE’s success is the evolution of the customer base. Compared to the third quarter of last year, both the geography and applications of its customers have changed.
Amkor had a sluggish quarter, with flat revenue and a net loss. James Kim, Amkor’s chairman and CEO, cited overall industry conditions for their results. Amkor is expecting capital expenditures of about $100 million in 2005, after spending about $400 million in 2004. This cautious mode is in contrast to aggressive moves made by Amkor in recent years, some of which did not meet expectations when the industry faltered.
SPIL continued its consistent growth for yet another quarter, logging a 2% revenue gain. SPIL shows the least volatility among the major test and assembly subcontractors, and it currently has a higher capacity utilization rate (87%) than its competitors. Amkor and STATS ChipPAC were at 72% and 70%, respectively, in 3Q04. These two facts are probably related, suggesting that SPIL has solid long-term agreements with its customers.
STATS ChipPAC, reporting results for the first time since the merger between STATS and ChipPAC was finalized, saw a bigger drop in revenue than Amkor, but a smaller loss for the quarter. The comments from Tan Lay Koon, STATS ChipPAC’s president and CEO were similar to Amkor’s. He said, “Our business in the third quarter 2004 was affected by inventory adjustments in the electronics supply chain,” although he was encouraged by seasonal demand for PCs. He also noted strong demand for advanced packages, including 3-D packaging and advanced test services.
At ChipMOS, a 9% drop in revenue was seen in 3Q04, although the company’s gross margin was the highest in the group at 26%. The earnings per share at ChipMOS was a healthy $0.17, compared to $0.07 for ASE and $0.08 for SPIL. S.J. Cheng, chairman and CEO of ChipMOS, was relatively optimistic about 4Q04, predicting up to a 3% growth, in the face of an industry apparently moving into a downturn.
So, 3Q04 was a mixed bag for the packaging and test subcontractors, with most of the highlights coming from Taiwan. This will be a significant trend to watch.
JEFFREY C. DEMMIN, director of product marketing, may be contacted at Tessera Technologies Inc., 3099 Orchard Dr., San Jose, CA 95134; (408) 383-3691; e-mail: email@example.com.