by James Montgomery, News Editor, Solid State Technology
Global packaging and testing (PAT) revenues are expected to grow at half the rate in 2007 that they did in 2006, and will improve marginally in 2008, according to new data from Gartner Dataquest. A closer look inside the numbers reveals the emergence of outsourced semiconductor assembly and test services (SATS), which is poised to balloon by nearly a third over the next three years and reach equal footing with IDMs.
Combined, total packaging and testing (PAT) revenues (IDMs plus SATS) will top $48.16 billion this year, up 8.9% from last year. Outsourcing revenues in the PAT market should do a little better, with about 10% growth to $21.1 billion. Overall test sales are seen rising 7.1% to $10.42 billion, with most of that growth in outsourcing -- 10.7% vs. 4.4% for IDM test sales, Gartner says. In packaging, IDM and SATS sales are about equally paced at 9.3%-9.6% growth.
In 2008, Gartner sees a 12% increase in total worldwide PAT sales to $54.15 billion, followed by another minor slowdown to 9% growth in 2009 ($59.12 billion). SATS, meanwhile, will enjoy nearly 17% growth next year (to $24.53 billion) and 13% in 2009 (to $27.72 billion).
The outsourced services segment has been growing at least 50% faster than the semiconductor industry overall since 2001 -- last year SATS surged 26.4% vs. just 8%-9% for the total semiconductor industry, noted Jim Walker, research VP for Gartner's semiconductor manufacturing and design research group. IDMs are outsourcing more, he pointed out, largely because of the trend toward customization, which can be difficult to cost-efficiently digest because equipment sets are too expensive, and utilization rates are lower.
At the forefront of the outsourcing growth trend is the test segment, expected to surpass IDM sales by 2010. This is noteworthy, Walker points out, because there's a lot of "family jewels" IP in testing -- sensitive in-house processes could be deduced and duplicated by gleaning information about yields and test vectors. Still, "because of capitalization issues, test is being outsourced more and more," he noted. Logistics, too, is playing a role in manufacturers' decisions to outsource test operations, since many of them are already contracting out to packaging and assembly houses (including more wafer probing work), and in-house test can be inconvenient and costly to send shipments back and forth.
The value of semiconductor packaging has been steadily increasing too, in relation to total semiconductors -- from 15% to around 20% in the next 4-5 years, Walker noted. Part of that is due to enabling integration on the package instead of the die, which helps manufacturers more quickly and cost-effectively squeeze through the market windows shrunk by "have it your way" consumer product demand (e.g., screaming-fast PCs, or cell phones with a laundry list of features like camera and GPS). This integration essentially means "taking chips off the shelf and making a system-on-chip without the nonrecurring engineering costs," explained Walker. In effect "we're integrating Moore's Law via packaging."
Also a factor in the growing importance of packaging is the change from leadframe to substrate-based packages. Increased costs for more expensive raw materials are being passed along, increasing the packaging value, Walker noted. In addition, packaging is now being done in conjunction with silicon -- DDR2, DDR3, and DDR4 packaging has electrical properties that affect silicon speeds, so the packaging side can dictate what the substrate is for the module, what the packaging type is, etc.
Like the rest of the industry, SATS firms had a soft 1Q07, and particularly in April when their capacity utilization bottomed out, Walker noted. But capacity is now back up to the mid-80% range, "not tight, but over breakeven," he said. And unlike other sectors of the chip world, PAT companies have become very disciplined in the past couple of years at managing their equipment and capital assets. "It used to be they would build it and everyone would come -- put in capacity, then go out and find people to fill it," Walker said. "That's changed big-time." Most PAT firms won't buy any equipment without long-term (2-3 year) contracts in hand. It helps that cycle times in the PAT sector are only about a week, and for any desperately needed capacity, equipment can be purchased and installed in under three months, so there's very little lag time to getting up and running.
Walker is a bit optimistic about the remainder of 2H07, noting news from earlier this year about increased shifts to outsourcing (e.g. LSI Logic using STATS ChipPAC). Moreover, he pointed to an influx of positive news about August revenues from KYEC and Siliconware, in a month that's typically an indication of how the holiday buying season is shaping up. (It's worth noting that three of the top five packaging companies are in Taiwan, where by law companies have to report monthly sales data relatively quickly -- which provides better visibility about how the businesses are doing.) He's also optimistic about the start of 2008 as well, citing major consumer-spending factors such as the 2008 Olympic Games and the US presidential election. -- J.M.