The Contract IC Packaging Market Is Poised for Dramatic Growth

- By Steve Berry and Sandra Winkler, Contributing Editors
Electronic Trend Publications, San Jose

Over the last decade, many semiconductor companies have chosen to outsource the packaging of their IC products. As a result, a significant group of companies have been started-or have been spun off from captive operations-to provide these packaging services.

The semiconductor industry has referred to these companies by a variety of terms such as contract assembler, packaging contractor, packaging sub-contractor, manufacturing services provider, packaging contractor or packaging foundry. No one term seems to fit, for in today's world many of these companies have evolved into providers of a variety of manufacturing services. For simplicity we'll use the term "packaging contractor."

The number of ICs assembled by packaging contractors expanded 16 percent in 1998, even as the world market (in units) remained essentially flat. Substantial growth of the contract IC packaging market should continue over the next five years, as shown in Table 1.

However, all was not completely rosy for packaging contractors in 1998. The intense price problems of the semiconductor industry were passed along to the packaging subcontractors. As a result, the average package price charged by the contractors fell from 56 cents in 1997 to 53 cents in 1998.

Given a healthier semiconductor industry and shift to more complex packages, the average price per package should rise slightly, to about 57 cents in 2001. The tremendous growth in array-style packages will be primarily responsible for pushing the average package price higher.

As a result of this average price increase, packaging contractor revenue will grow slightly faster than units. Table 2 depicts the packaging contractor revenue forecast. This revenue is for assembly services only. Many of these companies earn revenue from providing additional services.

For instance, while most companies that employ contractors for package assembly still generally perform final test, the amount of testing performed by packaging contractors is increasing. This is a value-added service and an addi-tional source of income.

But packaging contractors must be careful, for test equipment is very expensive and cannot cost-effectively sit idle. As the revenue earned from test varies widely by product, the total revenue earned from final test is beyond the scope of this article.

The growth of the packaging contractor market continually attracts new participants. These new entrants face a difficult task, for many packaging contractors have been in business for years. Some of these contractors began as captive facilities of semiconductor companies and were spun off as independent subsidiaries.

These independent subsidiaries have the advantage over startups in that they already possess ongoing equipment lines and have at least one very large customer keeping their lines operating.

The top five packaging contractors (in approximate ranking by the number of units they assembled in 1998) are Amkor, Carsem, Advanced Microtronics, Signetics, and OSE.

Below this list of top competitors, almost 50 additional companies are now jostling for market share. As the packaging contractor market has considerable growth potential, it is highly possible that the ranking of competitors will change dramatically in the coming years.