Subcontractor Update: Caution Follows Solid Q2


The financial reports for the major assembly and test subcontractors were quite positive in the first quarter of 2004, but those numbers don't tell the whole story. All of the companies covered here had measurable revenue growth compared to the previous quarter, and they also all showed significant profits. Cautious guidance for the next quarter was the norm, though.

If you look at the quarterly revenue results as represented by the bar chart in Table 1, you would think that the industry is cruising along with a pretty nice upward trend. You would be right, but if that cautious guidance is accurate, Q2 might be the last quarter of that nice trend across the board.

Table 1. Quarterly revenue at assembly and test subcontractors over the last 10 quarters. For reference only, the announced merger of STATS and ChipPAC is represented by the sum of the revenue numbers from the two companies.
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The largest percentage revenue gain was seen by ChipMOS, with nearly 40% growth in one quarter. In spite of lower demands for assembly and test of display driver ICs, one of the key sectors for ChipMOS, the growth was above its previous guidance. DRAM and flash memory testing were cited as a strong area for the company in Q2. A revenue drop of up to 10% is predicted for Q3, although a return to growth is expected in Q4.

Amkor's numbers for Q2 were still positive, with 6% revenue growth and profit similar to the previous quarter, but it was already seeing softening of the market during the quarter. Amkor's prediction is for flat revenue and a small net loss in Q3. It is also slowing its capital expenditures, with just $80 million projected for the second half of 2004, after spending $295 million in the first half. Amkor has been spending money, though — in Q2 it announced the purchase of Unitive, which added electroplated wafer bumping capability to Amkor's offering.

Market leader ASE probably had the most optimistic view of the near future. It had a very strong quarter, with 18.5% revenue growth and over $70 million in profit. It is always impressive when the largest company has one of the largest growth rates too. ASE stops short of a growth projection specifically for Q3 in its Q2 statement, so the next quarterly report should be interesting.

The impressive quarter-to-quarter progress at STATS slowed down a bit, with just 5% revenue growth, but the company has now had positive revenue growth for eleven consecutive quarters. This streak, which is certainly unusual in such a volatile industry, might be in jeopardy next quarter, though. With the early August completion of the merger with ChipPAC, the short-term financial results might be difficult to predict, so STATS expected to provide updated guidance shortly after the merger.

ChipPAC had a good quarter, with 12.1% revenue growth that let it slip ahead of STATS in the revenue rankings in the last full quarter before completion of the merger between the two companies. ChipPAC also bucked the trend and predicted “improvements in our business” in Q3. Dennis McKenna, ChipPAC chairman and CEO, noted stacked die, system-in-package, and test as areas where its investments have paid off. In test, for example, ChipPAC saw a 70% unit growth compared to the same quarter last year.

Finally, SPIL continued the steady growth that it has seen since the beginning of 2003, with a modest 3% growth. It was still highly profitable, with an earnings per share of $0.12, which was exceeded only by ChipMOS. There was no formal prediction for Q3 in SPIL's Q2 release. One interesting note, though, was related to test. Even though only 9% of the company's revenue comes from test, 43% of its capital expenditure in Q2 was in the test area. Perhaps SPIL is looking to boost its growth with a bigger focus there.

So, the Q3 results for the semiconductor assembly and test service providers are likely to reflect a slump in the business, but it remains to be seen what the longer term trend is. When the stall around the beginning of 2003 occurred, not many people were confident that it would be minor and reverse itself to avoid a major downturn, which it did. I get the feeling that the industry is better prepared for a downturn this time around, though, just in case.

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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 protected].


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