Semiconductor Automated Test Equipment Market on the Mend (Executive Summary) Executive Summary

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1 Semiconductor Automated Test Equipment Market on the Mend (Executive Summary) Executive Summary Publication Date: 4 December 2003

2 Author Laurie Balch This document has been published to the following Marketplace codes: SOFT-WW-EX-0146 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 Semiconductor Automated Test Equipment Market On the Mend (Executive Summary) Study Objectives Key Findings and Highlights This report presents a comprehensive, in-depth look at the trends and drivers in the semiconductor automated test equipment (ATE) industry. It provides a quantitative and qualitative overview of the state of the ATE market today, and how we believe it will evolve over the next five years. The information presented is based on our ongoing research into the semiconductor ATE market worldwide. The following are key findings and highlights of this report: 2001 and 2002 were intensely rough years for the semiconductor ATE industry. The market plummeted 63 percent in 2001 to just over $2.5 billion in product revenue followed with another 15 percent decline in market size, reaching just more than $2.1 billion. In contrast, this came after the wildly successful performance of 2000, in which the ATE market grew over 70 percent. The Asia/Pacific region has regained it stronghold position for the ATE market, representing over 40 percent of the worldwide market in The North American and European markets lost market share, with North America dropping from its position as the largest regional segment. Japan is also finally beginning to regain market share after a long drought. In 2003, regional revenue distribution has continued the trends of The ATE market has historically been heavily dominated by a few large vendors. The top six vendors control nearly 80 percent of the market. Though the market share rankings among these largest companies had been fairly consistent in prior years, the incredible turbulence in 2001 and 2002 caused some significant shuffling of market share positions each year. Agilent claimed the market share lead from Advantest in the overall ATE industry in Teradynye had another poor year in 2002 and fell back to the No. 3 market share position. During 2003, the market share rankings of the top ATE vendors are once again changing. Preliminary results for 2003 show that Teradyne has reclaimed the top market share spot, with Advantest and Agilent dropping back to the No. 2 and No. 3 positions, respectively. The sweeping declines felt by every ATE market segment in 2001 didn't carry over into In 2002, the assorted segments saw very variable growth from one another. The largest ATE market segment continues to be memory testers, and its share of ATE revenue slipped a bit in The mixed-signal integrated circuit (IC) tester segment remained the secondlargest ATE segment, but also lost a couple of market share percentage points. Digital/logic IC testers are still the third largest ATE segment and actually gained a few market share points in Preliminary results for 2003 indicate that mixed-signal IC testers have surpassed memory testers as the largest ATE market segment. Digital/logic testers have also lost a few market share points. On the contrary, system-on-a-chip (SOC) testers, radio frequency (RF)/microwave testers, and analog/linear testers have each gained additional share of the total ATE market in Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 Semiconductor Automated Test Equipment Market on the Mend (Executive Summary) SOC testers are a much smaller segment of the total ATE market with 11 percent share, but it is clearly a growing slice of the total ATE pie and in the unique position of having grown even in revenue terms in Despite all the hype surrounding SOC testers in the past few years, many of the designs typically classified as SOC are really mixed-signal devices with digital and analog components. Only a small fraction of devices being developed are truly SOCs with substantial amounts of digital, analog, memory and even RF circuitry. The largest application segment is devices for computers and peripherals, followed by consumer electronics applications. Telecommunications/ datacommunications and wireless applications aren't far behind. Growth was highly varied among the application segments. The computers/ peripherals segment saw phenomenal growth in 2002, though it also had the largest decline the prior year. This huge growth led to computers/ peripherals leaping into the No. 1 market share position over all segments in The consumer electronics and automotive industry segments also demonstrated positive growth in 2002, while all other segments remained in negative territory. In the late 1990s, independent test houses were rapidly gaining market share at the expense of independent device manufacturers (IDMs), confirming the trend toward increased use of test outsourcing. In 2001, this trend reversed itself though probably temporarily as test outsourcing providers shrank as a relative portion of ATE sales. In 2002, test outsourcing suppliers once again began to increase their capital spending and grew their share of the test market. Foundries/contract manufacturers remained a small and growing portion of the total ATE market customer mix. Test outsourcing suppliers and foundries/contract manufacturers will likely continue to comprise an increasing portion of the customer base in the coming years. The semiconductor industry downturn had profound effects on the ATE industry. The dramatic slowdown in semiconductor device production resulted in a huge dropoff in IC test services and spending on new test equipment. The competitive landscape of the ATE industry also continues to change, with new companies emerging and others undergoing mergers and acquisitions. The past few years have seen several ATE startups enter the market, while the major players have been purchasing a variety of small and large test companies. Interoperability and open architecture are hot buzzwords permeating the ATE industry. This trend is driven by customer requests for more flexible, scalable test equipment that will help keep down the costs required to constantly upgrade hardware to handle the next generation of semiconductor devices. Several ATE vendors have responded with their own open architecture plans, the most notable of which is the Semiconductor Test Consortium (STC) being spearheaded by Advantest. With the semiconductor market finally beginning to show some signs of gradual improvement, the ATE market should return to positive growth starting in However, revenue growth levels are projected to only be heading upward through This recovery cycle will be fairly short lived. ATE investment budgets will ramp back, but will not do so with the same fervor and longevity as during the previous market upturn. Overall, the worldwide ATE market is projected to grow at a compound annual growth rate (CAGR) of approximately 11.6 percent through With the projected growth trajectory, the ATE market won't approach its 2000 level the pinnacle of recent ATE market size and growth during the pending market recovery cycle Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

5 Semiconductor Automated Test Equipment Market On the Mend (Executive Summary) 3 Gartner Dataquest Perspective Report Description After two years of dismal industry conditions and sharply negative market growth, the ATE market is finally poised for an upturn. The entire market sank during 2001 and 2002, and no market segment was left untouched should mark the cusp of an ATE market revitalization, though it has started off weakly. By 2004, market growth will shoot significantly upward, but ramp up is likely to be over quickly, lasting only a couple of years. Regrettably, what lies ahead for the ATE industry is a short-lived upturn, not the protracted market recovery that is so clearly needed to allow the industry to regain some healthy stability. As a result, vendors must be firmly poised to take advantage of immediategrowthopportunities.vendorsmustbereadytobevery opportunistic in seizing sales opportunities as they emerge, since the window of market growth is so short this time around. With customers' increasing emphasis on flexibility and scalability of test hardware, market segments that will see significant benefits in the near term are SOC and mixed-signal testers. Interest in hardware flexibility has also led to vendors developing strategies for product interoperability and open architectures. The next few years will see more announcements and product introductions targeting these trends. It will also be interesting to observe how the STC succeeds in the marketplace with its own efforts to create industry-wide open architecture standards. Meanwhile, the structural tester trend will compete as an alternative solution for low-cost, scalable test equipment. Structural testers will gain popularity as more vendors plan to launch their own structural tester products in the market. The ATE market landscape of vendors and customers should continue to change, as well. There have already been a number of mergers and acquisitions among ATE vendors during the market downturn. Such activity is also likely to carry on as the market picks up again because the unbalanced industry growth will further differentiate vendors with stronger market standing from those with vulnerable positions. The market downturn altered the customer landscape, as well. Initially, test outsourcing suppliers shrank as a percentage of total market spending when they pulled in the reins on their equipment expenditures. By the second year of the downturn, IDMs were following suit, bringing the landscape back into balance. But each of these customer segments has re-energized their capital spending at different rates and along different timelines. The customer segmentation picture is only starting to stabilize now. The tumult of the past couple of years has caused substantial change in the ATE market, the fallout of which will still be taking shape as the market recovers over the next several years. ATE vendors and customers have been impacted by the tremendous market turmoil, and there has been some shifting market dynamics as a result. Ultimately, though the market cycle is now turning around, there are longer-term repercussions whose effects have not yet fully been felt. This report is divided into 7 major sections. Chapter 2 includes an explanation of the market research methodology used in this report. Our survey methodology and data collection methods are outlined, and our market metrics and applications are defined. Chapter 3 provides an overview of how we look at the semiconductor ATE market, and Chapter 4 identifies the trends that will have the greatest impact on the future shape of the market. Chapter 5 offers detailed market statistics for the semiconductor ATE market in 2001 and 2002 and Chapter 6 provides preliminary market statistics for the first half of Chapter 7 discusses Gartner Dataquest's view of the factors influencing future ATE market growth and presents our forecast for the industry Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003

6 4 Semiconductor Automated Test Equipment Market on the Mend (Executive Summary) For the full report, see "Semiconductor Automated Test Equipment Market On the Mend," SWTA-WW-MT Gartner, Inc. and/or its Affiliates. All Rights Reserved. 4 December 2003