A few years ago, companies that assembled and tested ICs were about as comfortable with the heavy financial action on Wall Street as the Beverly Hillbillies were. At the same time, Wall Street believed IC assembly was a decidedly low-tech business. Market makers considered assembly an industry whose main assets were plenty of grunt labor, lots of machines running 24/7, and little in the way of intellectual property. That view changed radically in February 1996, when Victor Batinovich took the San Jose-based Integrated Packaging Assembly Corporation (IPAC) public. IPAC, founded only three years earlier by Batinovich, E.C. Ong and Dr. Skip Fehr, in 1996 pulled in revenues of $36 million with an income of $2.87 million. Its IPO brought in $23 million "to fund IPAC's continued growth," according to the company's 1996 annual report. But despite the annual report's glowing predictions, that was not to be. The Recession Within a year, a recession slammed the industry. And suddenly, the largest customers were gone: Sierra Semiconductor folded its San Jose operation, Tseng Labs closed, and Cirrus Logic downsized. Perhaps worst of all-at least from a psychological standpoint-kingmaker Intel defected. It opted for BGAs instead of the QFPs it was ordering from IPAC, but which IPAC was not ready to deliver. Then Batinovich departed after losing a battle with the venture capitalist-dominated board of directors over the company's future direction, and Ong also departed. With its key customers gone, IPAC was swimming in red ink. Its stock, which earlier traded as high as $16US on the NASDAQ national market, sank to pennies at which point the company was finally delisted. While IPAC watchers wondered if the company would survive-and in what form-a white knight of sorts appeared. The presumed savior was publicly traded OSE, a Taiwan-based competitor, that stepped in and bought IPAC. Behind the scenes, Batinovich and his consortium were also bidding on IPAC, but lost to OSE. A Mistake Ask Victor Batinovich today why he took IPAC public, and he will reply, "Why did I make that mistake?-and you can quote me." Today Batinovich is ready to unveil his fourth startup, Advanced Interconnect Solutions, a CSP, flip-chip and wafer-level packaging company. He promises he won't repeat the same mistakes, which included spending a great deal of his time trying to raise money in small increments. Batinovich says he spent most of his time trying to raise money in small increments for IPAC before he considered an IPO. The small incremental monies, he adds, came from venture capitalists (VCs) who rarely fully understood the IC assembly business. "When I started IPAC, I raised a few million, then another couple of million and then another couple of million in venture capital," he recalls. It turned out that I was spending the majority of my time trying to raise venture money." Before he took IPAC public, he raised $14 million. After IPAC began trading, "I was going from one financial analyst's presentation to another. I was in a position where I couldn't run the company because of the time needed for stock presentations." Looking back, a better alternative to going public would have been to scale back company growth plans and try to diversify the customer base. He observed, "We did prove that this business is viable and can be done anywhere-but not if you're undercapitalized." Select the 'Right' Directors He also emphasizes that it's important to have the "right" financial partners, and equally important - if not more so-to have the "right" directors on the board." No company should have a VC-dominated board-another mistake acknowledged by Batinovich. Although Wall Streeters initially loved IPAC's stock, when the company suddenly fell on hard times, the market quickly turned its back on the company. In the Far East, even before IPAC was formed, Thailand-based Alphatec Elec-tronics went to the public troughs on the Stock Exchange of Thailand in November 1993 at 81 baht per share, (about $3.25US). The Exchange halted trading on April 27, 1998 at 0.6 baht-pennies a share-after certain "irregularities" involving Alphatec became known. Alphatec was started by Charn Uswechoke, a well-connected Thai national from a wealthy family, who was educated in finance at North Texas State University. He surrounded himself with some of the savviest assembly veterans in the business, all former ex-pats, who were apparently not privy to what was really going on at the company. After a brief and mercurial life, Alphatec collapsed, leaving behind it a trail of smoke and mirrors-and possibly a few shattered dreams, as well. The shell of the former Alphatec has been reborn as Alphatec Holding Company, with assembly plants in Bangkok and Shanghai, China.[alphatec.co.th.] Rebirth Ratings The shell of the former Alphatec has been reborn as ATS Services company, with assembly plants in Bangkok and Shanghai, China.[atssc.com]
As the table shows, several other Asian IC assemblers have gone public, with, so far, mixed results.
Notes: 1. Companies whose IC packaging is a limited part of their overall business, such as IBM and Koycers, are not listed. 2. For companies whose stock has traded for less than a year, the highs and lows during their trading period are shown. 3. All listings were either supplied by the companies or taken from their respective stock exchanges and companies by Chip Scale Review. All prices were converted to U.S. dollars. 4. The Taiwan Exchange uses numbers, instead of symbols, for listed companies. To date, Amkor Technology Inc., which began as the sales and marketing arm of Anam Industrial Co., Seoul, has been by far the most successful entrant into the public markets among the IC assembly community. It is also the largest IC assembler and test provider, with annual revenues approaching $2 billion. Amkor, whose corporate headquarters are in West Chester, Pennsylvania, but which operates from Chandler, Arizona, boasts no fewer than eleven stock analysts, including Bank of America Securities and Robertson Stephens, who follow the company. In May, nine of these eleven stock analysts rated Amkor a "strong buy," and the other two labeled it a "buy." Since its listing on the NASDAQ [AMKR], the company has traded as high as $65.31 a share and as low as $7.09. Standard & Poors, one of the companies tracking Amkor, expects earnings per share to increase to $1.63/share from an estimated $1.19/share this year. S&P expects revenues to grow "more than 25% in 2000, reflecting strong semiconductor unit demand and a more stable pricing environment." Powerful Trends Amkor will continue to benefit from two powerful trends, S&P adds: "Strong secular semiconductor market growth and booming demand for outsourcing services. With each of these trends still in the early stages, we believe AMKR will be in a strong growth mode at least for the next two years. At a recent level of 29X, our 2001 EPS estimate, the shares were trading at a sharp discount." With Amkor's success, others are likely to follow. There have been strong rumbles, since it became independent, that ChipPAC plans to go public. Many observers now believe ChipPAC, Hyundai's former assembly and test division, will go public as soon as the market again becomes friendly to the high-tech sector. Recently, PSI Technologies, based in the Philippines, and Singapore-based STATS, two of Amkor's smaller competitors, joined the NASDAQ. Both are traded with ADRs on the NASDAQ, while STATS is also listed on the Singapore Exchange. Gaining Respect Will either garner the respect that Wall Street has accorded Amkor? Since both are newcomers with less than six months as public companies, it's too early to tell. However, one major stock analyst has rated PSI [PSIT] a "strong buy," and two others rate it a "buy." Two Wall Street analysts feel STATS is a "buy" now and one disagrees, saying "buy/hold." In Europe, CS2, a barely four-year-old IC assembler, was admitted to listing on the EASDAQ in Belgium, CS2's home, in February. The initial price per share was 14 euros (about $13US). The IPO was oversubscribed by a factor of 34X. "The huge interest shown by both institutional and private investors confirms that the market has every confidence in CS2's growth strategy," says Steve Lerner, president and founder. Lerner is a former Amkor and Swire executive. The Choice of Public or Private The public markets are not for every IC assembler. Pantronix in Fremont, Calif., has done quite well, thank you, by remaining a privately owned company during its 26 year lifetime. Does Pantronix have any plans to go public? "We have no need to go public. I'm not saying we would never become a public company," says Stanley Wang, Pantronix founder, chairman and president, "but at this time we have no need for outside capital." Victor Batinovich |
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