SAN JOSE, Calif. On top of issuing a bearish outlook for bellwether Teradyne Inc., an investment banking firm Friday (Sept. 29) urged the automatic test equipment (ATE) industry to consolidate.
Most ATE vendors experienced a surge in orders in recent quarters, but vendors are now seeing a slowdown. The ATE industry is falling back into its old and familiar rut, as there are too many IC-test vendors chasing after shrinking capital budgets in a competitive environment.
Competitive pressures, falling margins and the shift towards lower-cost testers remain the central themes in the ATE industry. "To that extent, we believe that the industry is in an urgent need of consolidation," said Mehdi Hosseini, an analyst with Friedman Billings Ramsey & Co. Inc. (FBR).
In total, the semiconductor test equipment market is expected to hit $3.865 billion in 2006, up 20 percent over 2005, according to FBR (Arlington, Vir.). In 2007, the market is expected to reach $4.431 billion, up 15 percent, according to the firm. Overall capital spending is expected to grow by 12 percent in 2007, it said.
For years, experts have predicted a major shakeout in ATE. While there has been some consolidation over the years, many expect a bigger shakeout if or when the market hits the wall again.
One of the potential victims of a shakeout could be Credence Systems Corp. (Milpitas, Calif.), which has been struggling for some time. LTX Corp. (Norwood, Mass.) has experienced a major rebound after a string of losses, but some still wonder about the company's fate.
Even market leaders Advantest Corp. (Tokyo) and Teradyne (Boston) are seeing slowing growth. "Checks at subcontractors suggest [Teradyne's] 3Q booking decline will be in the 30-40 percent range, worse than our expectations of down 20 percent, resulting in shortfall in our estimates," Hosseini said.
The analyst cut his revenue estimates for the third and fourth quarters of 2006, from $355 million and $321 million, to $348 million and $251 million, respectively.
Analysts are also watching a trio of ATE companies, Eagle Test, Nextest and Verigy, which have recently launched IPOs.