By Dr. Phil Garrou, Contributing Editor
Continuing our look at presentations from the Grenoble SEMI 3D Summit which took place in January lets look at an interesting presentation by ATREG consultants on the future of Assembly & Test.
ATREG – The Future of Assembly & Test
Barnett Silver from ATREG Inc. discussed their thoughts on “The Future of Assembly and Test…” They base their predictions on the following themes which are in alignment with what you all have been reading in IFTLE for the past 230 blogs.
- Packaging and test is an enormously important component of semiconductor manufacturing.
- Technology and economics are driving convergence / consolidation between front-end and back-end manufacturing.
- Prior concepts inhibiting front-end / back-end convergence / consolidation are fading
- In the future the packaging landscape will look different from today.
They proposed the following sequence time line for the evolution of the packaging and test industry : stage 1 - fully vertically integrated companies did their own chip design, manufacture, test and packaging; stage 2 - back end packaging and test began to separate into assembly companies ; stage 3 - foundries and fabless companies created a period of specialization and separation of tasks; stage 4 –(which ATREG indicates starts around 2010) they see re-integration.
IFTLE sees it slightly differently with convergence of package and test skills into the foundries but not a reintegration for fabless or IDMs.
Of the total industry COGS of $205 billion, ~25% (or $51 billion) is spent on assembly & test.
Five firms dominate outsourced packaging, accounting for over half of the total OSAT industry and 25% of the total back-end spend of $51B.
It has normally been assumed that since foundry margins are significantly higher than OSAT margins, traditional OSAT business would be unattractive to foundries. With a few exceptions, foundry / OSAT acquisitions would be dilutive to foundry’s gross margins yet foundries show interest in aspects of A&T.
This perceived dichotomy can be understood by looking at the difference between packaging margin on standard chips vs advanced chips. In fact, over the last five years, OSAT firms have delivered better returns for investors than foundries partially because assembly houses spend far less per year on capex than foundries [ i.e. 18% vss35% in 2013].
As prostheliytized by IFTLE, the economics of the latest node chip fabs are limiting those who can move forward with such expendatrures, and products are being customized by the packaging that is being chosen. It is quite likely that this will be where margin will come from in the future.
Customers will be choosing between a turnkey model controlled by the foundry (proposed by TSMC) or a collaborative model where the foundry and the OSAT remain as separate entities (proposed by GlobalFoundries).
Among other things ATREG concludes that:
• Foundries, OSATs, and IDMs will fight over the $51 billion A&T market.
- IFTLE agrees that foundries will battle with OSSATS but is not yet convinced that IDM are getting back into the fray.
• As technology drivers change, there will be significantly more focus on the back-end industry.
- IFTLE absolutely agrees.
• There will be re-integration and convergence between front-end and back-end.
- IFTLE agrees through both convergence (which some now call “mid end”) and consolidation.
•Disruption in the OSAT industry will increase.
- IFTLE agrees again through convergence and consolidation.
• IDMs / fabless may invest in advanced packaging
- IFTLE is not convinced.
In conclusion, although IFTLE agrees with ATREG on most point (and has been documenting these facts for many years) we are not convinced that IDMs and the fabless are looking to get back into the packaging business.
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