ST Assembly to rival Siliconware after takeover

ST Assembly Test Services Ltd's US$1.6 billion acquisition of ChipPAC Inc may put it in a position to challenge Taiwan's Siliconware Precision Industries Co (矽品) as the third-largest provider of chip-testing and chip-packaging services.

ST Assembly, based in Singapore, ranked sixth with a 2.7 percent market share in 2002, according to Gartner Inc. ChipPAC was fifth with 4.4 percent. Siliconware Precision had 7.7 percent. The all-stock purchase will cut the Singapore government's majority stake in ST Assembly to about 36 percent.

The purchase of Fremont, California-based ChipPAC, announced yesterday, gives ST Assembly factories in South Korea, Malaysia and China and boosts its skills at packaging chips, chief executive Tan Lay Koon said in an interview. This allows it to compete "head on" with larger rivals, he said.

"The battle will be for the third spot," said Pranab Kumar Sarmah, an analyst with Daiwa Institute of Research. Amkor Technology Inc of the US, which had market share of 16.8 percent, and Taiwan-based Advanced Semiconductor Engineering Inc (日月光), with 15.8 percent, are the industry leaders. Officials at Siliconware didn't immediately return a call seeking comment.

The combined company, to be known as STATS ChipPAC, may have sales of US$1 billion this year, with one customer, which Tan declined to name, accounting for more than 10 percent of revenue.

In terms of testing, it will be the second-largest behind Advanced Semiconductor.

"By combining the two companies we immediately create a platform that is both strong in assembly and strong in test," Tan said in a televised interview. "These two companies are also very complementary in terms of the customer base we bring to the table."

ST Assembly had sales of about US$97.9 million in the third quarter, while ChipPAC's revenue was US$105 million. Siliconware earned sales equivalent to US$217 million in the third quarter.

Fewer 1 percent of employees at the STATS ChipPAC will lose their jobs after the acquisition and there are no plans to close any factories, Tan said. The companies have hired Electronic Data Systems Corp's AT Kearney unit to help them manage the integration, according to a filing with the US Securities and Exchange Commission.

ST Assembly will scrap plans to build a new plant in China following the acquisition of ChipPAC's Shanghai factory, which is the nation's largest testing and packaging plant, according to ChipPAC's annual report. Getting into China may allow ST Assembly to benefit from rising production of semiconductors, with the nation's chip-making capacity expected to jump by three-quarters this year, according to Gartner.

"China is the strongest impetus of growth not only in Asia but also for the world," said Jan Lee, chief strategist in Singapore for EFG Bank Financial Advisory Group.