In these challenging times, we expect to see the semiconductor market continue to churn quite a bit. Since packaging is a broad indicator of the semiconductor industry as a whole, our business exhibits, to some extent, a "portfolio effect." We're benefiting from market segments that are showing strength, while weaker end-use market segments are contributing to the packaging industry's delayed overall recovery. Thus, it seems prudent to assume that a recovery will be gradual and extended.

Lean times force companies to undertake rigorous self-examination, leading them to refocus on core competencies. A good illustration-and an indication of what the future holds for the semiconductor industry, and packaging in particular-is the historical relationship between electronics OEMs and contract manufacturers (or EMS companies). Beginning in the late 1980s, EMS companies transformed from a tactical, short-term manufacturing resource into a significant strategic resource for nearly all OEMs, which needed to outsource manufacturing and design capability to remain competitive following a sharp industry downswing. The contract-manufacturing industry prospered, despite severe pricing pressure and intense competition. The industry adapted to ongoing margin pressures, and the most successful companies grew rapidly, leading to equally rapid consolidation, as four or five EMS companies emerged from a hundred or so contenders to dominate the industry today.

We see the same situation emerging in chip packaging, as integrated device manufacturers and contract assemblers walk a path similar to that traveled by OEMs and EMS companies. This trend will have a dramatic impact on the semiconductor packaging industry. We anticipate accelerated outsourcing of back-end processes by IDMs over the next few years as they examine ongoing strategies, seek to conserve resources and invest in areas that will result in sustainable competitive advantages. From contract assemblers, we expect increased focus on process development and optimization as they look to develop intimate relationships with their IDM partners amid severe price competition.

Again, as with the EMS companies, we expect a number of the current contract assemblers to thrive and grow rapidly-perhaps, in some cases, even combining with EMS companies to provide complete outsourced manufacturing and assembly solutions. IDMs and contract assemblers will forge more intimate relationships, and the strategic value of outsourced packaging solutions will continue to climb. The ultimate outcome of this transition will be a leaner, more focused set of companies, working closely together.