SANTA CLARA, Calif. -- Nearly two years after being spun out of South Korea's Hyundai Electronics Industries Co. Ltd., IC-packaging and testing giant ChipPac Inc. is plotting a bold new strategy to double its market share by 2005.
To reach its lofty goal, publicly-traded ChipPac plans to expand its customer base, beef up its worldwide supply-chain operations, and embark upon an aggressive acquisition strategy. The Santa Clara-based company also plans to expand its production capacities in its chip-packaging and testing plants located in China, Korea, Malaysia, and the United States.
In early 2001, ChipPac expects to unveil two new and advanced packaging technologies, including what it calls a lead-frame chip-scale package (CSP) and a flip-chip CSP.
The moves are part of a strategy to turn become a one-stop shop of backend chip-assembly services, offering everything from commodity and advanced IC packages to final test for customers, said Dennis McKenna, president and chief executive officer of ChipPac.
Over the years, in fact, ChipPac has grown from a niche-oriented sub-contractor based in Korea to a major player in the chip-packaging arena. The company now employs about 7,000 employees worldwide. ChipPac estimates that its revenues in 2000 grew 33% to $500 million from $375.5 million in 1999. The company posted a loss of $7.3 million in 1999, but analysts are predicting that ChipPac will earn about $390,000 in 2000.
Fueled by outsourcing trends in the backend chip assembly and testing, ChipPac believes its sales will grow by about 20% in 2001, McKenna said.
Today, the company claims it is the world's third largest IC-packaging and
testing sub-contractor, in terms of global sales, behind U.S.-based Amkor Technology Inc. and Taiwan's Advanced Semiconductor Engineering Inc. (ASE).
"We have 8% of the worldwide IC-packaging market now," McKenna said in an interview with SBN. "We want to have 20% of the market by 2005," the CEO added
But McKenna knows his ocmpany faces major challenges in reaching its lofty goals, including growth of competition in Asia. "The guys that really
keep me up at night are the Taiwanese foundries and sub-contractors,"
McKenna admitted. "These are the guys that can really move on a dime. The
Taiwanese sub-contractors are not the technology leaders, but they are the
fast followers," he said.
Another major concern is whether or not the chip industry will experience a major downturn in 2001.
There are already ominous signs in the market. In November, for example, ChipPac announced that its sales for the fourth quarter of 2000 would be approximately $128 million, with a net income of $0.03 per share. This would represent an 18.6% increase over revenues of $107.9 million for the fourth quarter in 1999, but the projection is lower than its previous forecast for the final three months of 2000. Financial analysts had been expecting ChipPac to earn $0.18 a share in the quarter, based on a survey by First Call/Thomson Financial.
"Near term, it will be very unpredictable for companies like ChipPac,
because of the oversupply in the IC-packaging arena," cautioned analyst Brett Hodess, who tracks the company for Merrill Lynch in San Francisco. "Long term, I am very bullish on ChipPac," he added. "ChipPac is a technology leader that offers a migration path for customers."
ChipPac remains bullish on 2001. "Now, we have excess inventories in the channels," McKenna said. "And some companies are in worse shape than others. But we still plan to grow in 2001."
There is still strong demand for commodity-oriented packages, while advanced products like 3D, BGAs, CSPs, flip-chip, multi-die, and others remain promising, he observed.
And all packaging houses are also banking on the outsourcing trend. In the past, chip makers handled the bulk of their own packaging and testing needs in-house, but now they are outsourcing more of their requirements to the sub-contractors to reduce costs.
Some 26% of all chip products were outsourced to third-party packaging
houses in 1999, but that figure is projected to jump to 50% by 2010,
according to Dataquest Inc. in San Jose. The contract chip-packaging and testing market will grow from $25.5 billion in 1999 to $53 billion by 2003, Dataquest predicts.
ChipPac itself is looking to be the leader in the market after a humble beginning. The company's origins can be traced back to 1984, when a then-small Korea chip maker, called Hyundai, formed a merchant IC-packaging, assembly, and test division.
In 1995, Hyundai's little-known packaging operation got its biggest break, when it entered into a major alliance with Intel Corp. Under the terms, Intel decided to use Hyundai's ball-grid array (BGA) packaging technologies for its PC chip set, flash memories, and other IC lines. At the time, Intel also outsourced some of its packaging requirements to another company with roots in Korea--Amkor.
But Intel did not outsource the packaging requirements for its microprocessor lines to Amkor and Hyundai. To this day, Intel still handles the bulk of its packaging requirements for its processor lines in-house, according to industry analysts.
By 1995, ChipPac had some $100 million in sales, thanks in part to Hyundai, Intel, STMicroelectronics, and other major customers. Today, Intel is one of ChipPac's largest customers. In fact, Intel--as well as Qualcomm Inc.--each hold a 6% to 7% stake in ChipPac.
In the late 1990s, meanwhile, Hyundai's IC-packaging division--renamed ChipPac in 1997--was in limbo when its Korean parent company found itself in an assortment of difficulties, including financial turmoil.
In order to raise cash and lower its debt, Hyundai in March of 1999 decided to spin-off ChipPac as an independent U.S.-based company. Under the terms, Hyundai retained a small stake in ChipPac, which was based in Santa Clara.
Last August, ChipPac launched its initial public offering, with a goal of funding additional production capacity. At present, the company has four major chip-packaging and assembly plants in three countries--China, Korea, and Malaysia. In total, ChipPac has some 1.4-million-square-feet of manufacturing space.
Currently, the company operates two high-volume plants in Ichon, Korea. These have more than 420,000 square feet of manufacturing space, and they are geared for the production of BGAs, CSPs, lead-frame, and other package types.
Another key plant is located in Shanghai, China. In fact, the company claims to be the only major merchant IC-packaging house to have a large-scale plant in China. "We believe we have a two-year head start over our competitors in China," McKenna said.
Built in 1997, the Shanghai plant is a 443,000-square-foot facility that is geared for the production of BGAs and other package types. "In the first quarter of 2001, we will be the first company to produce chip-scale packages in China," he said.
Last August, the company embarked on its acquisition strategy by purchasing a backend facility in Kuala Lumpur, Malaysia, from Intersil Corp. for $69 million. This plant, which has 524,000-square-feet of space, is devoted for the test and assembly of power-IC and discrete packages, such as T0-20xx, among others.
The move gave ChipPac the leadership position in the mature but growing power-IC packaging business, McKenna said. "None of our competitors offer this capability," he said.
Continuing its acquisition strategy, it acquired Viko Test Labs from its parent company, Viko Technology Inc., in November for an undisclosed amount.
With the acquisition of Viko Test Labs, based in Santa Clara, ChipPac believes it will significantly boost its internal IC-test capacity. Viko Test Labs provides IC-test, burn-in, failure analysis, wafer sort, and other services for chip makers. The company has facilities in both Santa Clara and Austin, Tex.
"Acquiring Viko Test Labs also allows us to immediately and more effectively support customers who need to quickly produce complex prototype chips," McKenna said. "It also expands our U.S. presence, provides access to key new customers, and expands our staff of proven technical personnel," he added.
To tie its various manufacturing sites together, ChipPac last month announced it developed a new supply-chain system. The company deployed SAP's R/3 line of enterprise resource planning software in its various plants to streamline the flow of data between the company and its customers.
Amid its major expansion strategy, the company also hopes to remain on the leading edge. For example, it recently licensed a flip-chip package technology from LSI Logic Corp. Initial shipments will begin in the first quarter of 2001.
In early-2001, ChipPac will roll out what it calls a lead-frame CSP. Geared for chips running at 1-GHz or faster, the package is designed for variety of high-performance, low-cost applications, such as networking, wireless, and others.
"This package could be the next big thing in the industry," McKenna said. "It's a chip-scale form-factor package that will be offered at a lower prices than leaded-frame packages."
It also plans to roll out a flip-chip CSP-a packaging technology designed for use in 48- to 300-pin packages. "Initially, this package was developed for Rambus' RDRAMs," he added. "This package is also suitable for logic ICs,
DSPs, and other products."
The company plans to give more details about these packages during the first quarter of 2001.