Gartner Dataquest Alert Semiconductor Packaging and Assembly 2002 Review and Outlook During 2002, the industry continued slow growth in unit volumes after bottoming out in September 2001. After a hearty first quarter followed by a dismal second quarter in 2002, volumes increased again in the third quarter. As the third quarter ended and the fourth quarter was under way, we experienced three straight months of increases from July to October, giving some hope that the industry might be on its way to a sustained growth period. But, just like a year ago, November sales appeared dismal and the industry seemed to have slowed again as the end of the year approached. These cyclic adjustments to the market will probably continue well into the first and possibly second quarter of 2003, as consistent long-term demand has yet to materialize. However, unit growth will still increase month to month, but at a slower rate than hoped for previously. SATS Industry The industry has been oscillating up and down in approximately a 20 percent range for well over a year now. Most Semiconductor Assembly and Test Service companies (SATS) reported increased sales in 2002 compared with the disastrous year of 2001. While bookings and subsequent sales were up anywhere from 10 percent to 30 percent compared with a similar period in 2001, the month-over-month increases continue to be in the single-digit realm. They remain significantly below 2000 levels, however. Prices for the assembly of outsourced packages stabilized in the first half of 2002, only to see a brief wave of erosion occur in the first part of the third quarter, depending on package type. Test prices also followed a similar pattern. Even though increases in package volumes were seen in most of the packages, with the small-outline package (SOIC), thin small-outline package (TSOP), quad flat package (QFP), and plastic dual in-line package (PDIP) leading the way, price erosion continued to cut into profits. For the first time and indicative of the advanced packaging trend, array packaging accounted for over 50 percent of the revenue for many of the major SATS companies in 2002. These advanced packages continued to grow in 2002 with system-in-package (SIP), ball grid array (BGA), chip scale packages (CSP) and flip chip leading the way. December 18, 2002 2002 Gartner, Inc. 1
The growth rate of packaging and assembly outsourcing (SATS) companies turned positive in 2002, after a decrease of more than 34 percent in 2001. The SATS market revenue is estimated to be $8.2 billion in 2002, up from $7.14 billion in 2001. The shift to array and leading-edge packaging is growing, while continuing to be more sophisticated and complex. Thus, many integrated device manufacturers (IDMs) and OEMs started to outsource more as the end of 2002 approached. They continue to conserve their capital and are now actively seeking to outsource more of their packaging requirements. As the transition to these new packages has occurred more in recent months, the result is the return to growth and profitability in the outsourcing market. Packaging Trends Now that the industry has bottomed and at least slow growth has returned, production implementation of new package and assembly technologies can occur. Array packaging (CSP, flip chip and BGA), SIP and stacked (3D) packaging all have seen increasing growth in the past few months. Of specific interest is the growth of the quad flat-pack, no lead (QFN) family of packages. This CSP-style package is said to be witnessing the fastest ramp up of any package previously introduced in the industry. This ramp up is because of the transition away from the larger, more mature SOIC family of packages. As 2002 came to a close, the industry is now in full transition from the first generation of surface mount packages (SOIC, plastic leaded chip carrier [PLCC], and QFP) to the next generation of smaller leadless and bumped families of packages (CSP and BGA). Also transitioning is the development of the multichip SIP concept as a lower-cost approach to the system-on-a-chip (SOC). Memory initially adopted this concept for Flash/static RAM (SRAM) applications in cell phones, but is now embracing it as a solution for broader applications as well. As 2003 emerges, we see the stacking of DRAM memory, and more combined applications of memory/application-specific standard products (ASSPs), memory/microcontrollers, and radio frequency (RF)/analog for the SIP market. The cost saving and faster time-to-market benefits of a SIP became evident to many customers in 2002. Wafer-level packaging (WLP) processes continued to be developed and more are on the horizon as 2003 emerges. Production started on many new packages in 2002 utilizing this new technology. The benefits of reduced testing processes, decreased manufacturing time, lower cost, and a shorter time to market for WLP results from the final packaging steps occurring in wafer fab as opposed to a separate packaging facility. In 2002 wafer foundries such as TSMC offered wafer bumping and WLP services to provide an integrated, more complete outsourcing solution to the customer. We expecttoseeanincreaseinthisas2003emerges. Equipment Market Packaging and assembly equipment suffered greatly in 2001 and 2002 was not any kinder. After a horrible 2001, the pain remained as the demand for packaging and assembly equipment was nowhere to be found. In 2002, the market contracted another negative 22.7 percent to $2.3 billion. This was after dropping negative 55.8 percent to $2.98 billion in 2001. December 18, 2002 2002 Gartner, Inc. 2
As in the past, the majority of semiconductor packaging continued to be performed in the Asia/Pacific region. Thus, equipment shipments to that region dominated the market numbers with two-thirds of total worldwide shipments. Equipment for this region (South Korea, Taiwan and other Asia/Pacific countries, including China) accounted for 67 percent in 2002, with Taiwan being the largest single country receiving equipment. Equipment segment performance remained down in all but one category for 2002. The only bright spot was equipment used for flip-chip packaging technologies. By the end of 2002, flip-chip bonding equipment shipments increased 5.7 percent. On a percent basis, this may seem incredible in light of the overall market. On a dollar basis, however, the growth was only $4 million. As always, wire bonders continued to be the largest equipment segment for semiconductor packaging, accounting for a little over 15 percent of the total packaging equipment market. Packaging materials did not go unnoticed in 2002 as they continued to feel the pressure of lower prices. Substrates used in BGA and CSP packages continued to drop in price for 2002, albeit not quite as bad as 2001. Market competition eroded the price on single and multilayer package substrates, in flexible and rigid structures. Another challenge for the near term is occurring not from a cost view, but from an environmental view. As 2002 drew to a close, pressure to implement "green" materials increased dramatically. Lead-free solders and antimony-free and halogen-free encapsulation and molding compounds were being adopted, as some OEMs in Japan mandated the switch by the end of the year. Gartner Dataquest Perspective For 2003, Gartner Dataquest observes the following: Consolidation of assembly and test service companies will continue in 2003. Excess capacity and lack of available capital has made some of the second- and third-tier SATS companies vulnerable to buyouts or mergers to survive. As the semiconductor industry recovers and grows, company valuations will increase, making it more viable to occur. Japan will continue its adoption of the outsourcing model, which began in 2001. IDMs and OEMs will increase their outsourcing of advanced packages in 2003. The result will see the SATS industry grow by over 30 percent in 2003. In 2003, test will continue to grow faster than any of the other outsourced semiconductor manufacturing services. Stacked packaging technologies (3D packaging) will expand into ASSP and ASIC, with logic, memory, and analog functions squeezed together, as the desire continues for smaller size and faster speed with lower package costs. The packaging and assembly equipment market will begin to see growth in 2003, with the growth rate projected to be 25 percent above 2002 levels. Packaging materials and design will continue to be challenged, as they must meet the everincreasing higher-frequency requirements demanded by the wireless industry. Additionally, the demand for power and discrete packaging continues as portability and power management products grow. December 18, 2002 2002 Gartner, Inc. 3
Substrate technology must keep pace. The desire to place power and ground signals in the package will be required to improve operating efficiencies. Additionally, the need for finer lines and spaces will be required for electrical improvements and size reduction. Microelectromechanical systems (MEMS), optical and silicon substrate technologies will see substantial growth in 2003. The drive for system integration combining mechanical, electrical or opticalinterfaceswillbeoneofthemajorforcesthatwilldrivetheindustry. China grew in assembly infrastructure development and capacity in 2002. This will continue into 2003 and beyond as IDMs and SATS companies accelerate their transition to China as a manufacturing hub. Lower manufacturing costs, government incentives and a huge, untapped end market for computers, consumer, and telecommunications products will produce a growing semiconductor manufacturing base for many years to come. By Jim Walker December 18, 2002 2002 Gartner, Inc. 4
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