Packaging and testing sector under pressure

Taiwan semiconductor companies in the field of back-end packaging and testing are under double pressure in maintaining their world's leading position in the industry, facing a growing demand for improved technology while China threatens to seize global market share.

The packaging and testing industry plays a key role in back-end semiconductor manufacture. With improving technologies pushing the front-end silicon wafer manufacturing process from 0.25 micrometers to 90 nanometers and even to 60nm and 45nm, the sector in Taiwan is also faced with the challenge of technological improvement.

It is essential for companies that do not want to be knocked out of the business to overcome their technological barriers and take advantage of the demand for "fine pitch" packaging services from leading wafer fabricators.

The existence and market prospects of the packaging and test sector -- an indispensable back-end semiconductor manufacture process -- is closely bound up with integrated circuit (IC) production.

According to statistics compiled in the Industrial Technology Intelligence Services (ITIS) program under the Ministry of Economic Affairs, the output value of Taiwan's IC industry broke the NT$1 trillion (US$30.09 billion) mark to reach NT$1.99 trillion in 2004, representing growth of 34.2 percent over the previous year.

Some NT$156.5 billion of that amount was the output value of the IC assembly industry, while NT$57.7 billion was from the test sector. The two figures recorded year-on-year growth of 33 percent and 41 percent, respectively.

It has been assessed that the output value of Taiwan's IC manufacturing industry will surge to NT$1.279 trillion in 2005, while that of the packaging sector will rise to NT$178.1 billion at an expected annual growth rate of 13.8 percent, and that of the test sector will increase to NT$67 billion at a growth rate of 16 percent.

Historically, semiconductor companies designed, manufactured, packaged and tested IC chips in their own integrated device manufacture (IDM) facilities. As the industry expands under strong market demand, a trend is also growing for these companies to outsource stages of the manufacturing process, enabling them to focus on their core competencies such as design and integration, and meet increasing demand.

development

After development of nearly two decades, a complete up-mid-down stream of supply chain system was formed in Taiwan's semiconductor manufacturing industry. But in the economic recession between 2000 and 2001, a large-scale company reshuffle occurred in the back-end packaging and test market. Weak companies were either integrated or bought out by foreign or domestic enterprises.

Thus, professional and international IC assembly and test service providers emerged. The Kaohsiung-headquartered Advanced Semiconductor Engineering Inc (ASE, 日月光) replaced the US-based Amkor Technology Inc to become the world's largest supplier of outsourced semiconductor interconnect services in 2003.

Taiwan's second-largest company dedicated to IC design, assembly and testing -- Siliconware Precision Industries Co (SPIL, 矽品) -- trailed behind with revenue surpassing US$1 billion in 2003 for the first time since its establishment.

Meanwhile, thanks to fast expansion of the industry in the manufacture of thin film transistor-liquid crystal displays (TFT-LCDs), the demand for driver ICs has surged in the past few years, leading to a boom in orders for driver IC packaging and test services. Driver ICs are one of basic key components of LCD displays.