Steve Berry and Sandra Winkler Contributing Editors

While it may not feel like it, the semiconductor industry has turned the corner to better times, and so have the packaging foundries.

Unit shipments of ICs assembled by packaging foundries grew 30 percent in 2002. While packaging foundry revenue growth was more modest at 5 percent last year, it still represented growth.

Volume Runners

What are these units and where are they going? Logic and analog chips continue to provide the packaging foundries' volume runners. Many of the logic chips are simple logic devices, and can be found in everyday places, including washing machines, automobiles and other unglamorous locations.

Many of the simpler devices are packaged in SOs-more than half of the ICs packaged by contract assemblers were SOs-but CSPs are growing rapidly.

The QFN/SON-style CSP will experience the greatest growth rate of all packages assembled by contractors, with a compound annual growth rate (CAGR) of 42.8 percent through 2007. While the I/O count and price per I/O are low, growing volumes add up to significant revenues. These packages are ideal for rapidly growing wireless markets, such as WiFi (802.11).

Processors

While processor chips represent relatively low unit volumes for packaging foundries, they bring in a lot of revenue. Processors, of course, require high I/O packages. It is interesting to note that more processors are still packaged in QFPs than BGAs in the packaging foundry market. That's because processors-as a category-include lots of microcontrollers. BGAs will not become the leading package type for processors until 2005.

Power management and power controller ICs represent another positive market for packaging foundries, finding their way into notebook computers, PDAs, cell phones and many other products.

Conserving Energy

The power chips place these products into various low-power modes to conserve energy. In these days of power conservation, power management ICs provide a valuable service even in non-portable applications.

Power management ICs are typically housed in MSOP, SOP, SOT and TSOT packages, although newer generations will be packaged in QFN packages.

With end markets so varied, successful packaging foundries need to keep a well-balanced portfolio of packages. Relentlessly pursuing cost reduction measures is also critical.

Building on the basic package portfolio, successful packaging foundries must add services that offer a higher value to the customer and a higher profit margin for the foundry. This will be different for each company, as the packaging foundry positions itself for its customer base and markets. ASE and SPIL have been successful in this and are currently profitable.

Test is one service that a growing number of IC assembly contractors are offering to their customers. It is less a commodity service than it is a necessity. Some companies are expanding into bumping to augment their flip-chip assembly services.

Broad Customer Base Is Needed

A broad customer base is needed, too. Some companies who have either gone out of business or have been absorbed by other companies did not maintain a broad customer base to weather industry changes.

IPAC is one example of a company that did not have a sufficiently broad customer base or package portfolio to remain independent. It is now owned by Taiwan's OSE.

The same basic advice that holds for private investment holds for IC packaging foundries, too: Diversification is a good thing.