FREMONT, Calif. -- After years of select resistance and flat growth in the marketplace, the IC-test outsourcing business is expected to gain traction and double in growth by 2005, according to the top U.S. executive for Taiwanese chip-packaging and test giant Advanced Semiconductor Engineering Inc. (ASE).
The IC-test outsourcing business consists of what seems like a gaggle of small to large companies, which offer chip-testing services for semiconductor makers. These providers are often referred to as independent IC test houses.
This market is finally expected to take off, especially as chip makers move to lower their soaring chip-testing costs, said Tien Wu, president of ASE's operations in Europe, Japan, and the United States. Taipei-based ASE is the world's second largest IC-assembly and packaging provider, next to Amkor Technology Inc.
"We think the IC-test outsourcing ratio is increasing," said Wu, who is also the new chief executive of ISE Labs, a Fremont-based subsidiary of ASE Test Ltd., the world's largest IC-test house.
ASE Test is 51 percent owned by ASE of Taipei. In the IC test front, ASE Test competes against Amkor, STATS, OSE, and a slew of smaller, independent test houses.
Regarding the term "ratio," meanwhile, Wu was referring to the percentage of devices that are channeled through the third-party test houses. In total, only 9 percent of the chips made worldwide are tested via the independent test houses, according to Wu. "Within five years, we think that will double to 18 percent," he told Silicon Strategies at a technical conference at ISE Labs on Wednesday (July 30).
Today, the IC-test outsourcing market is small, compared to the third-party silicon foundry, IC-packaging and assembly, and, for that matter, the contract electronic manufacturing (CEM) sector. For example, electronic OEMs are said to outsource 45 percent of their production to the CEMs.
Right now, chip makers in total are said to outsource 32 percent of their IC-assembly and packaging requirements to the subcontractors, according to ASE. And in total, chip manufacturers outsource 15 percent of their wafer requirements to silicon foundries, according to the company.
Overall, the so-called semiconductor assembly and test (SAT) sector is growing much faster than the IC business. The SAT sector grew 18 percent in 2002 and is expected to jump by 22 percent in 2003, according to ASE. In comparison, the IC business grew 1.9 percent in 2002 and is expected to show 8 percent growth this year.
While the chip-packaging market is hot, the IC-test outsourcing portion of the business has been in a rut. "It's been flat," Wu said. "The outsourcing ratio decreased a little bit," due, in part, to the downturn in 2001 and 2002, Wu said.
Besides the obvious downturn, IC test houses face a huge barrier: chip makers, especially the integrated device manufacturers (IDMs), have been reluctant to hand over their prized test secrets to the third-parties due to intellectual-property (IP) issues. "People are concerned about their IP," Wu said. "Our job is to get them over those fears."
The IDMs are slowly but surely changing their ways. "The fabless companies have always outsourced their test requirements," he said. "The IDMs are outsourcing more and more."
Test houses must also prove that they can lower the overall cost of chip-testing for IDMs, which have traditionally handled their ATE requirements internally. "The cost of test is a big deal in the industry," he said. "Our model is to provide better utilization on an ATE platform."
Despite the apparent challenges, the IC test houses are experiencing sudden demand for their services right now. "In the test space, we're seeing between 80 to 90 percent utilization," he said. "On some ATE platforms, we are seeing 100 percent utilization."
ASE Test, which had $300 million in sales last year, projects that its capital spending will be about $150 million in 2003. This level of spending will be adjusted based on actual business. The company buys testers from a multitude of ATE providers, such as Advantest, Agilent, Credence, LTX, NPTest, and Teradyne.
Typically, chip makers qualify their devices on a particular ATE platform or platforms, forcing ASE Test to procure a number of test systems. "We're like a restaurant business," Wu said. "Some people like Italian. Some people like Chinese. So we have all types of test equipment."
ISE Labs, and, for that matter, ASE Test, has a larger installed base of 93000 line of testers from Agilent Technologies Inc.--based on customer demand. Agilent's strong suit is testing graphics and PC chip sets. ASE Test is strong in this area as well.
ASE Test itself is also moving to become more efficient, by recently reorganizing its chip-testing business. Previously, ASE Test and ISE Labs were run as two separate operations. In April, the company consolidated the engineering, marketing, and other functions within ISE Labs and ASE Test.
ISE Labs, a subsidiary of ASE Test, still exists and handles the "front-end" portion of a company's chip-testing requirements. Equipped with some 100 testers, including production ATE and burn-in systems, ISE Labs is in charge of test engineering, debugging, and early production. Its facilities are located in Fremont; Austin, Texas; and Singapore.
Volume production is handled through ASE Test's plants, which are located in Korea, Malaysia, and Taiwan. "Once we qualify a device, we move it offshore," Wu said.