ATLANTIC CITY, N.J. -- The International Test Conference (ITC) will be going full tilt here this week, and much of the action will be coming from the makers of the automatic test equipment (ATE). They could use some action.
The ATE business usually suffers badly in a semiconductor industry downturn. Test almost always is the first cost center to get slashed. And last year was no exception.
Now ATE's fortunes seem to be changing. That should be showing up strongly at the ITC this week, analysts and executives say.
Last year was a "difficult scenario," acknowledges Jackie Tubis, president of Schlumberger ATE. "We had a strong first half and dropped precipitously in the second." But 1999 has been getting "significantly better," she says.
That seems to be true for many test gear vendors. While its sales were flat from a year ago, Teradyne Inc. wrote up a record $571 million in new orders for ATE gear in its second quarter ended July 4.
Credence Systems did even better, showing a 40% increase in sales over last for its third quarter ended July 31.
LTX Corp., which lost a whopping $78 million in the fiscal year ended July 31, 1998, eked out a small profit in fiscal 1999 thanks to a strong fourth quarter that turned in net profits of $4.3 million.
"ATE is really good now," declares Risto Puhakka, vice president of operations at VLSI Research Inc. in San Jose. "Its growth rate is better than the wafer-processing segment," he says.
The ATE market, in a marked turnaround from last year, should grow about 16% this year over 1998, or double the rate that the San Jose market researcher expects for the entire chip equipment, Puhakka says. Last year the ATE industry dropped 21% from the previous year, according to VLSI Research.
The Semiconductor Equipment and Materials International (SEMI), the Mountain View, Calif., trade group, is not quite as bullish. Analyst John Schuler figures the ATE market will hit $4.6 billion this year, up slightly from $4.4 billion in 1998. "The first quarter of 1999 was very strong," he adds.
One factor that could boost the tester business is that chip industry under-invested in test gear for the past three years. And as a rule of thumb, "When you have two back-to-back down years, the market comes back very strong" the following year, says Dave Ranhoff, executive vice president of Credence.
But that's not to say that profits will automatically follow. Because of the downturn, the average selling prices of test systems have been somewhat depressed, says VLSI Research's Puhakka.
ATE vendors "face quite a bit of pressure," he says. "They've been pricing on pin count."
That might be good for at least one vendor. "That actually plays quite well to Credence's strength, which is to be a high-value, low-cost test provider," claims Ranhoff.
Adding to cost pressures is the fact that there are at least three major vendors in each primary test segment, all with comparable capabilities, Puhakka notes. "Customers play one off against the other," he says.
On the other hand, new technologies that result in more complex chips with a more complex test process are forcing a reevaluation of the role of and need for test. Most of the new tester business is at the top end, where system-on-chip (SOC) testers are rewriting test parameters. "Complexity and the number of pins" are driving the new requirements of test, says SEMI's Schuler. Here, he says, test makers can charge a premium price.
Tubis says Schlumberger is seeing technology buys now as the chip industry moves to 0.18-micron processes and prepares for 300-mm wafers. "There is some very unique technology coming right now," she notes. Her company has made 13 new product announcements this year and recorded a major win for test gear at Samsung Electronics.
But the timing on one important new tester market remains a question mark. Vendors were worried about the Rambus tester market even before Intel Corp. canceled at the last minute the formal introduction of its Camino chip set which will be used with Rambus memory. The problem was a design glitch.
But this market still looks promising to such vendors as Schlumberger and the Hewlett-Packard Co., which have major development programs underway for Rambus testers. "We've made a big commitment to Rambus," acknowledges Schlumberger's Tubis.
These complex new testers won't come easily, however. SEMI's Schuler points out that large-scale ASICs and SOCs are creating thermal problems in test. Also causing problems for test is the move to 12-inch wafers.
Adds VLSI Research's Puhakka: These new complex chips are going to change the way testing is done, he says. "It will require completely new knowledge."