Manufacturing News

Overstretched Taiwanese Chip Assemblers Scramble to Expand Capacity

Jason Chang, chairman of Taiwan's No.1 chip assembler, Advanced Semiconductor Engineering Inc. (ASE), reported at a conference in early May that his company was busy boosting capacity to cope with a deluge of orders that stretched his production lines to the limit-and beyond.

That was a sharp contrast to a serious capacity utilization recession that afflicted the island's chip assemblers in 2008, when financial crisis swept the world.

ASE plans to spend US$450-500 million on expansion this year. And it is not the only chip assembler-a company that provides chip assembly and testing services on a contract basis-that is faced with the happy situation of having more orders than capacity to fill them. Many of the island's other assemblers too have mapped out aggressive expansion plans.

The Siliconware Precision Industries Co., for example, will budgetUS$450 million and Powertech Technology Inc. will lay out US$375 million for added capacity.

ASE's expansion, Chang reported, is being carried out mainly in Taiwan and mainland China. The projects include a new factory now under construction in China's Kunshan, which was scheduled to come on stream in mid-May, and a brand-new factory in Taiwan's Kaohsiung, which was to start operating in late May. Industry executives estimate that these two projects alone are costing ASE at least NT$10 billion (US$312 million at NT$32:US$1).

The mainland factory is designed specifically to compete with ASE's mainland Chinese rivals for low- and mid-range orders, which ASE has lost to the mainland suppliers as a result of the Taiwan government's restrictions on high-tech investment in the mainland.

Early this year Taiwan's KMT-led government, which advocates stepping up economic and cultural ties with the mainland, eased the investment restrictions that were mostly imposed by the former government led by the pro-independence Democratic Progressive Party (DPP).

ASE has announced it will try various approaches to expansion in the mainland, including the acquisition of packaging and testing assets that IDMs (integrated device manufacturers) are peddling and entering into alliances with manufacturers through ASE units in Shanghai, Suzhou, Weihai, and Kunshan.

Good Match

The EEMS Suzhou Co. and EEMS Test Singapore Pte. Ltd., both owned by the Italian chip packaging and testing provider EEMS, are reported to be ASE's next acquisition targets. In response to the reports, ASE's spokesman, Joseph Tung, stated that the company does not rule out other acquisitions following its takeover of the Universal Scientific Industrial Co. (USI) late last year.

Singaporean semiconductor industry insiders say that EEMS' financial pressure and ASE's eagerness to remedy its capacity shortage are bringing the two companies together in talks that are expected to culminate in a deal in the middle of the second quarter. Industry executives believe that the acquisition of the EEMS facilities would enable ASE to secure contracts from Broadcom, Micron Technology, and Nanya Technology.

ASE's Chang pointed out that the company's expansion will focus mostly on copper-wirebonding, as gold interconnect processing has become increasingly expensive because of soaring gold prices. The company plans to increase the number of its copper-wirebonding machines to 3,000 by the end of this year, up from 1,500-2,000 systems in the first quarter.

Siliconware Precision, ASE's nearest rival, wants to catch up; it is planning to boost the number of its machines from the current 600 to 1,650 in the middle of this year and 2,150 by year-end. The company's chairman, W.P. Lin, says that most of his company's prime customers are shifting to copper-wirebonding processes to cut costs.

To focus its resources more sharply on adding copper-wirebonding capacity, Siliconware recently pulled out of the LCD- and memory-chip packaging and testing market and sold its related equipment to ChipMos Technologies Ltd., in which it has acquired a 15.77% stake. Siliconware's executives stress that the ChipMos investment is based on the company's earnings prospects.

Some institutional investors estimate that ASE's and Siliconware's copper wire-bonding businesses will grow to 20-25% of their total sales by the end of this year.

Powertech, Taiwan's biggest assembler of memory chips, is dealing with a flood of orders that have deluged its production lines by transferring some of them to Payton Technology (Shenzhen) Co., which is owned by Kingston Technology of the United States. Nevertheless, its in-house and borrowed capacity is still strained.

Powertech chairman D.K. Tsai reported that his company plans to ramp up capacity to 240 million DRAM (dynamic random access memory) chips a month in the fourth quarter this year by boosting production efficiency and increasing contracted capacity at Payton from the current 200 million chips. This statement has led industry watchers to believe that Powertech's capital spending this year will go mainly into boosting efficiency instead of installing new equipment.

Powertech has taken over a Suzhou factory from Spansion to carry out testing and packaging of MCP (polymide) chips. It plans to add logic-chip and memory-chip production to the factory as part of its capacity-building effort.

Workers Needed to Boost Production

Expansion is usually followed by recruitment. ASE, Siliconware, Kyec Yuan Electronics Co., and Chipbond Technology Corp. are each offering 50 to 100 new jobs, with copper-interconnect processing specialists the most urgently needed.

Like many other high-tech companies in Taiwan, chip assemblers felt the recession beginning to recede in the second quarter of last year when their orders started turning upward. ASE saw its revenue hit a 21-month high of NT$8.8 billion (US$266.8 million at NT$33:US$1) in September, bringing its total revenue for that quarter to NT$25.2 billion (US$763 million). The quarterly result represented an increase of 20.7% from the previous quarter, better than the originally target of 15%.

In the first quarter of 2010 ASE earned a better-than-expected NT$3.3 billion (US$106 million), or NT$0.64 per share, in consolidated after-tax net income. Industry executives attribute most of the momentum behind the hefty profit to the company's technological lead in copper-wirebonding packaging and quad-flat no-lead (QFN) packaging services, which has lured orders away from competitors.

On a consolidated basis the company recorded revenue of NT$37.5 billion (US$1.1 billion) and a gross margin of 20.1% in the first quarter; on a non-consolidated basis, its revenue and operating income were NT$27.4 billion (US$856 million) and NT$3.8 billion (US$119 million), respectively. The non-consolidated operating income represented a 3.6% slide from the previous quarter, yet it was above the NT$3.5-3.6 billion (US$109-112 million) that the market had projected.

The company forecasts that its core business will bring in 10% more revenue during the current quarter than it did in the January-March period, and will achieve a gross margin of over 25%.

In April alone, the company took in non-consolidated revenue of NT$9.97 billion (US$311 million), a spectacular 63.1% increase year-on-year and reaching 33% of the company's goal for the quarter. Total non-consolidated revenue for the quarter is projected to rise 11-13% from last quarter, to NT$30.4 billion (US$950 million).

Plagued by rising gold prices and the loss of copper-wirebonding contracts to ASE, Siliconware saw its revenue drop 10.5% in the first quarter to NT$15.6 billion (US$490 million). After-tax net income was NT$1.5 billion (US$473 million), or NT$0.48 per share, lower than the NT$0.6 projected by market.

Institutional investors expect the company's revenue to increase 10% this quarter because of improvements in yield using the copper-wirebonding process.

In April alone the company's non-consolidated revenue amounted to NT$5.01 billion (US$159 million), up 21.4% from the same month of last year.

In the first quarter, Powertech's after-tax net income amounted to NT$1.7 billion (US$55 million), or NT$2.53 per share, making the company the most profitable chip assembler on the island. Powertech believes that its quarterly gross margin will rise to 30% in the second half of this year, up from 27.5% in the first quarter.

ASE's Chang attributes most of the growth in business for the island's chip assemblers to a slowdown of investment by IDMs in new packaging and testing capacity, especially copper-wirebonding and flipchip processing capacity, over the past five to six years as the IDMs have tried to bring costs down by farming out work to dedicated assemblers like ASE. For example, Chang says, IDMs such as Intel, Renesas Electronics, Freescale Semiconductor, and NXP Semiconductors have increasingly contract the production of chips using 55/65nm processes to dedicated manufacturers.

Statistics recently released by the Industrial Economic & Knowledge Center (IEK) of the government-backed Industrial Technology Research Institute (ITRI) indicate that the island's chip packaging and testing production rose 7.9% and 8.4%, respectively, in the first quarter this year. In the past years, production has normally declined in the slack first quarter.

IEK attributes the growth mostly to brisk demand for mobile-phone and graphics chips, further bolstered by the rebounding consumption of LCD (liquid crystal display) drive ICs and memory chips. The center forecasts that the island's packaging production will expand by 36.3% this year, to NT$270 billion (US$8.4 billion), and that its testing output will grow 38.9%, to NT$121.7 billion (US$3.8 billion).

Most Viewed in 24 Hours


Start a Digital Twin Journey from Engineering Simulation

Accenture releases survey of digital transformation

CIMC Reduces Unplanned Downtime by 30% with Greater Operational Insight from ThingWorx

Ansys Simulation Speeding up Autonomous Vehicles

  • Tel : 0086-27-87592219
  • Email :
  • Add: 3B1 International Business Center, No. 18 Jinronggang Road (No.4), East Lake High-tech Development Zone, Wuhan, Hubei, PRC. 430223
  • ICP Business License: 鄂B2-20030029-9
  • Copyright © e-works All Rights Reserved