With a population of 3.3 million-which excludes some 700,000 foreign workers-a land size smaller than most large U.S. cities, and wages the highest among all Southeast Asian countries, Singapore would seem to have everything going against it as a location for IC assembly and test. Yet, perhaps surprisingly, Singapore is still holding its own as far as the backend of the semiconductor supply chain is concerned. That's despite intense competitive pressure from low-cost Asian neighbors Malaysia and the Philippines-not to mention the emerging powerhouse of China farther north. Commodity Packaging Long Gone Of course, the days when Singapore specialized in offering commodity IC packaging are long gone. Its forte now is advanced packaging and process R&D. The country also serves as a logistics hub for the rest of Asia. With strong financial support from the government, the makeup of this island's semiconductor manufacturing industry has slowly been transformed from backend dominated to front end.
Since the early 1990s, the government has focused its efforts on attracting wafer fabs as a means of increasing the value added per worker. The number of wafer fabs in Singapore, in fact, is now approaching the number of assembly and test factories (14 versus about 18). Good News Needless to say, more fabs are good news for the IC packaging foundries on the island, with most customers preferring to outsource both front-end and backend work to suppliers in the same vicinity to achieve reduced cycle times. One of Singapore's biggest strengths in the assembly and test field is its depth of engineering talent, built up over more than two decades of being in the IC packaging business. Strategic Location Add to that its strategic location in South-east Asia, a foreign investment-friendly government and a superb infrastructure in logistics, transportation and telecommunications, and the island republic still offers many competitive advantages. That is a view shared by the semiconductor packaging equipment suppliers with R&D and manufacturing operations in Singapore. ASM Pacific uses Singapore as an R&D base, although company headquarters is in Hong Kong. The company's largest competitor, Kulicke & Soffa Inc., moved its ball bonder operations from Pennsylvania to Singapore in 2000 and recently announced that it will transfer machine integration activities for its microelectronics group to the island. While backend equipment vendors won't find a huge market in Singapore itself, the island is a good base for sales and support into the rest of Asia. STMicroelectronics (STM), is one independent device maker (IDM) with deep roots in Singapore. Far from scaling down its packaging operations there, STM has beefed them up. To date, the European-based chipmaker has invested US $338 million in its two main packaging centers in Singapore. Needless to say, the company is choosy about what it makes in Singapore, sticking to those packages that are "profitable and have a predictable volume," according to Peter Lau, manager of process and packaging engineering. "We are not interested in investing in additional capacity for mature products," he says.
In the island's subcontracting ranks, the leading player is ST Assembly Test Services Ltd. (STATS). Began as A Test House Established in 1995 as a test house, STATS now generates a significant part of its revenue from packaging. Anyone who has visited STATS can't help but be impressed by its huge building: 580,000 square feet, over half of which is for manufacturing operations. At last count, there were 230 testers and 532 wire bonding machines. The reason an operation like STATS can exist in relatively high-cost Singapore is that it focuses on high-end, mixed-signal devices. Cost of Labor Minimal Labor cost is a minimal part of the equation, according to B.J. Han, STATS' chief technology officer. As he explains it, Singapore offers many other advantages that outweigh the higher costs. For example, Singapore offers a well-educated and English-speaking workforce and flexible immigration policies that allow companies to bring in foreign talent.
Han appreciates that last point. In 1999 STATS recruited him from Anam Semi-conductor in Korea. "The labor cost is not playing too much of a role in packaging and testing. If you look at Korea, which is the largest base in the world today, labor cost is pretty high compared to the rest of the world. "Yet they are making a sustainable business," explains Han. "And when it comes to testing, labor cost is even lower." Besides STATS, Singapore is home to United Test and Assembly Center (UTAC), a subcontract packaging house established in 1998 by a group of former Texas Instru-ments engineers. UTAC, with sales of about US$70 million, also beats the higher costs in Singapore by focusing on mixed-signal and logic devices and by going the extra mile when it comes to customer service. Echoing the views of Han at STATS, Albert Ng, UTAC's vice president of sales and marketing says, "In the market we are focusing on, the labor content is not that high compared to the overall cost. The major costs are in equipment and materials." Eyeing China While STATS and UTAC defend Singa-pore's competitiveness when it comes to more advanced packaging, they are both eyeing China and other lower-cost locations for possible future satellite factories to handle commodity packages. While China poses a threat to Singa-pore-and to the rest of Asia for that matter-foreign investors will ultimately migrate to those places offering the lowest cost of ownership, according to Pao Ning Yu, CEO of Ellipsiz Group, a Singapore-based advanced-packaging services provider. When all factors are considered, not just cheap labor, China isn't necessarily the clear winner. One key area of concern in the semiconductor sector is intellectual property protection, an area in which China's record is still poor. "People tell me," observes Pao, "that within 18 months of starting a plant [in China] somebody across the street has got a plant that looks exactly like yours and is attracting your people. That's not a very healthy thing to do for foreign investors."
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