In the stock market, the rule of thumb is that you buy low and sell high. Two semiconductor-equipment vendors ASM International BV (ASMI) and Unaxis Holding AG could be looking to apply the same rule for their respective backend units.
Here’s another way of looking at it: ASMI and Unaxis separately appear to be scrambling to exit the backend equipment market at a time when the business cycle has peaked for the sector. Indeed, leading IC packaging and test houses are seeing strong growth in the fourth quarter of 2005, but business is expected to trail off over time.
Indeed, ASMI of the Netherlands, a vendor of front- and back-end semiconductor production equipment, has recently agreed to discuss the break up of the company at a general meeting of shareholders, scheduled for May 18, 2006.
ASMI’s shareholders have suggested alternative business models, such as spinning off the company's 54 percent interest in ASM Pacific Technology Ltd., a supplier of wire bonders and other backend equipment.
This week, Unaxis said that it plans to sell its assembly and packaging equipment unit, dubbed ESEC, according to a report. Thomas Limberger, chief executive of Unaxis, was quoted as saying that the Swiss company is also looking to divest the entire semiconductor equipment unit.
Some analysts see the announcements as a welcome sign. ASMI and Unaxis could separately focus on the front-end tool markets and ultimately provide more value to shareholders. Still others said that a break up would be detrimental as their respective front- and back-end operations support each other during different business cycles.
The announcements underscore other ominous trends in the backend. For example, there are too many wire-bonder vendors chasing after too few dollars. In addition, based on its recent results, backend-equipment giant Kulicke & Soffa Industries Inc. is eating the competitions’ lunch, including that of ASM Pacific and ESEC. And perhaps more importantly, flip-chip continues to make inroads at the expense of traditional wire bonders.
Beyond the obvious analysis, there are some company-specific issues as well. For example, Unaxis’ announcement did not surprise analysts. The Swiss company has badly mismanaged its backend equipment unit, ESEC, since it acquired the company several years ago.
And for that matter, Unaxis’ recent efforts in semiconductor equipment have been a disaster at best, leaving some to believe that the Swiss company should throw in the towel and sell its entire fab-tool unit.
ASMI should also consider some drastic measures: revamp its front-end operations and spin-off its backend unit. The Dutch company’s backend unit has performed reasonably well; but in contrast, its front-end operation needs a shot in the arm. Simply put, it needs to expand its customer base and develop key technologies.
The company’s low-k chemical-vapor deposition (CVD) tools have enjoyed mixed results: its main (and only) customer is Intel Corp. Intel is also the main customer for ASMI’s epi reactors for strained-silicon applications.
ASMI’s efforts in atomic layer deposition (ALD) are admirable, but the market is struggling to get off the ground. And its acquisition of NuTool turned out to be a huge mistake.
If nothing else, ASMI and Unaxis should exit the backend equipment market before it’s too late and the bottom falls out in the tough, competitive market. But the problem for ASMI, Unaxis and other second-tier players is that the front-end equipment market is sluggish heading into 2006.
Some, in fact, think 2006 will be another down year for fab equipment. This in turn means more consolidation if doom and gloom for the entire industry in 2006. Welcome to the New Year!