Steve Berry and Sandra Winkler Contributing Editors

Based on research for Electronic Trends Publications' (ETP) upcoming report, The Worldwide IC Packaging Market, 2005 Edition, the total, global IC market grew 28 percent in 2004 to $179 billion-finally surpassing the 2000 peak of $177 billion.

Astonishing Growth

IC units hit 105 billion-an astonishing 53 percent growth since the drop in 2001. Unit growth may slow in 2005, but should remain strong in the following years.

To support this unit growth, semiconductor manufacturers increasingly are utilizing the services of contract service providers for wafer fabrication, package assembly and test.

Good News

This is good news for the packaging foundry business as a whole, but results for individual companies varied widely.

In looking at the results of various companies, there seem to be three keys to success: a broad package portfolio, close relations with the major wafer foundry companies and an extremely lean cost structure.

Over the last decade, ETP has watched as numerous companies tried to specialize in a few, specific types of packages. They all failed.

While semiconductor companies want to use packaging foundries, they want to be able to use one, or at most two, companies for their packaging needs.

This means that a packaging company must be prepared to assemble vast quantities of SOs-or even DIPs-at competitive prices. Approximately 50 percent of all packages assembled today are SOs!

The second key to success is a close relationship with the major wafer foundry companies. Today this means TSMC and UMC.

ETP believes that this is a major element to the success currently enjoyed by ASE and many of the other Taiwan-based assemblers. This may shift in the coming decade with the projected rise of Mainland China-based wafer foundry companies. Packagers must develop relations with companies such as SMIC now.

Cost Structure

This leads to a packaging company's cost structure. In 2004, the semiconductor companies enjoyed the best ASP improvement since 1995.

It appears, however, that they put a lot of that improvement into their own pockets and kept the pressure up on packaging costs. To support the cost expectations of the semiconductor companies, package assembly is moving to lower cost countries, primarily mainland China.

Although there remains within China's population a tremendous variation in skills, people are being trained to meet the demands of the worldwide electronics industry.

Transforming China, however, from a country with simple farming and manufacturing to one capable of semiconductor manufacturing and assembly has its challenges.

But the transfer of electronics manufacturing to China is fed by two unstoppable forces: One is the desire to use inexpensive labor; the other is the wish to sell products to the growing middle class.

As China's workforce develops in sophistication, wages will increase. With this increase, more consumers will be able to purchase the electronics produced there.

Investment

The Chinese government has invested heavily to develop the infrastructure to woo the electronics market, and many foreign companies have already responded by locating manufacturing plants there. Many more will follow in the coming years.

If the packaging foundry business follows the three keys to success mentioned above, the industry should continue to grow its percentage of worldwide IC units, as shown above.