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The reshuffle of the packaging and testing industry is accelerating, and mainlan

Recently, the semiconductor packaging and testing industry in mainland China has seen a flurry of changes.

On February 17th, the packaging subcontractor Lingsheng Precision Industry Co., Ltd. announced that, after careful deliberation by the board of directors, it has decided to sell all of its equity in Ningbo Liyuan, which amounts to 100% of the interests, to Zhejiang Yin'an Hui Enterprise Management Company. The total amount of this transaction reached approximately NT$ 3.078 billion.

Ningbo Liyuan has been in a loss-making state since 2020, and the extent of the losses is further expanding. In the current packaging and testing market, which has not yet fully recovered, if a buyer cannot be found, Lingsheng would need to continue to provide financial support to Ningbo Liyuan, hence Liyuan was put on the trading table.

Lingsheng Precision Industry Co., Ltd. is a company specializing in semiconductor packaging and testing, established in Taipei in 1970 by a joint investment from Mitsubishi Electric of Japan and Dasheng Electronics.

Subsequently, on March 4th, the leading domestic packaging and testing company, Jiangsu Changjiang Electronics Technology Co., Ltd. (JCET), announced that Changjiang Management Company plans to acquire 80% of the equity held by the seller in Xingce Semiconductor (Shanghai) Co., Ltd. (hereinafter referred to as Xingce Semiconductor) in cash, with a purchase amount of $624 million. The parent company of Xingce Semiconductor is Western Digital.

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These are not the only two cases mentioned in the text; in fact, mergers and acquisitions of packaging and testing factories have been frequently occurring in the past few years. Since last year, including companies such as Powertech Technology, Qorvo, and Nan Ya, several enterprises have successively adjusted their businesses and sold their mainland packaging and testing factories.

As for why these packaging and testing factories are in such a situation, it requires a detailed analysis.

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Packaging and Testing Market, Accelerating Consolidation

Firstly, in 2017, Siliconware sold 30% of the equity in its Suzhou subsidiary to Unigroup. Siliconware Precision Industries Co., Ltd., based in Taiwan, mainly operates in the business of integrated circuit packaging and manufacturing, processing, sales, and testing. Siliconware itself is one of the top four global professional packaging and testing subcontractors and is now a member of the Nanya Investment Holding Company.This transaction should have been one of the undisclosed exchange conditions for the approval of the acquisition of Silead by ASE Technology at that time, as on the same day the transaction was announced, the Ministry of Commerce of China issued a notice stating that it had approved the acquisition of Silead by ASE Technology with additional restrictive conditions. In 2020, Silead sold its Xiamen factory—Silead Electronics—to Shenzhen Haiwei Co., Ltd., a wholly-owned subsidiary of mainland memory module manufacturer Shenzhen Memory Technology, due to the factory's persistent failure to achieve economic scale and its ongoing loss-making status.

In December 2021, ASE Technology announced the sale of four factories and businesses in mainland China to Wise Road Capital, including ASE Semiconductor (Weihai) Co., Ltd., Suzhou ASE New Semiconductor Co., Ltd., and ASE (Shanghai) Semiconductor Co., Ltd., and ASE Semiconductor (Kunshan) Co., Ltd. After this sale, ASE Technology still has three factories in mainland China: Silead Suzhou, Shanghai ASE, Shanghai Yuexin, and Shanghai ASE Semiconductor, among which Yuexin is a testing factory, and ASE Semiconductor is a substrate design and manufacturing factory.

In June 2023, Powertech Technology successively announced the sale of 70% of Suzhou Powertech's equity to Jiangbo Long and the sale of Xi'an Powertech to Micron Xi'an, with the transaction funds to be used for Powertech's layout of advanced packaging capacity in Taiwan. The retained 30% equity in Suzhou Powertech also leaves room for its continuous expansion in the mainland China packaging and testing market.

Furthermore, Powertech has revealed in its board of directors that it will assess the possibility and necessity of producing in a third location outside of Taiwan, including Southeast Asia, India, and other places.

In December 2023, Qorvo announced the sale of its assembly and testing facilities in Beijing and Dezhou, Shandong, to contract manufacturer Luxshare Precision Industry, as one of its measures to reduce capital intensity and optimize the supply chain. After this divestment of its Chinese factories, Qorvo only has self-built factories in the United States, Costa Rica, and Germany.

On December 21, 2023, Taiwan's major packaging and testing company Nan Ya announced that the board of directors approved the 100% transfer of investment in its subsidiary ChipMOSBVI, selling all 45.0242% of the equity it holds in Shanghai Hongmao Microelectronics to 11 local enterprises, including Suzhou Yuanhe Puxin Equity Investment Partnership, with a transaction amount of 979 million RMB.

The changes in multiple packaging and testing factories are the result of market reshuffling and also part of the adjustment of the global semiconductor industry structure. After in-depth analysis, the main reasons for the above changes are as follows.

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Why is this the case?

The first point is that many manufacturers, considering the impact on the supply chain, have shifted orders to other regions for production.Sun Moon Light is a typical example. Sun Moon Light's CFO, Dong Hongsi, stated in the first quarter of 2023 that some production lines are in the process of being established in Vietnam, with the relevant work ongoing.

Powertech also revealed in its board of directors that it will assess the possibility and necessity of producing in a third location outside of Taiwan, including places like Southeast Asia and India.

This adjustment of the global value chain is expected to affect an increasing number of packaging and testing companies. As domestic companies become more involved in the global value chain, they may also face the possibility of being asked by clients to establish factories overseas.

The second point is the rapid development of the packaging and testing industry in Mainland China.

According to the 2023 global outsourcing packaging and testing rankings released by ChipInsights, the top ten outsourcing packaging and testing companies are Sun Moon Light (Taiwan), Amkor Technology (USA), Jiangsu Changjiang Electronics (Mainland China), Tongfu Microelectronics (Mainland China), Powertech (Taiwan), Huatian Technology (Mainland China), Smarter Micro (Mainland China), Kyocera (Taiwan), Nan Ya Technology (Taiwan), and Xintec (Taiwan).

Among them, there are five companies from Taiwan, four from Mainland China, and only one from the USA.

It is noteworthy that according to the 2018 global outsourcing packaging and testing rankings released by ChipInsights, the top ten packaging and testing companies were Sun Moon Light (Taiwan), Amkor (USA), Jiangsu Changjiang Electronics (Mainland China), Siltron Precision (Taiwan), Powertech (Taiwan), Tongfu Microelectronics (Mainland China), Huatian Technology (Mainland China), United Test and Assembly Center (Singapore), Kyocera Electronics (Taiwan), and Xintec (Taiwan).

Among them, there were five companies from Taiwan, three from Mainland China, one from the USA, and one from Singapore.

It can be seen that in just five years, the company rankings in the packaging and testing market have actually undergone significant changes. For example, in 2023, Tongfu Microelectronics has already entered the top five in the global outsourcing packaging and testing rankings; among the TOP10 in the global outsourcing packaging and testing rankings, the number of companies from Mainland China has increased from three in 2018 to four in 2023; United Test and Assembly Center from Singapore and Siltron Precision from Taiwan have fallen out of the top ten, replaced by Smarter Micro and Nan Ya Technology.

Looking again at the revenue situation. In 2021, Tongfu Microelectronics achieved a revenue of 15.812 billion yuan, a year-on-year increase of 46.84%, and a net profit of 966 million yuan, a year-on-year increase of 148.76%, reaching a historical high. In 2022, Tongfu Microelectronics achieved a revenue of 21.429 billion yuan, a year-on-year increase of 35.52%. The revenue for 2023 has not been officially announced yet.In 2021, Jiangsu Changjiang Electronics Technology Co., Ltd. (JCET) achieved a total operating revenue of 30.5 billion yuan, a year-on-year increase of 15.3%; the operating profit was 3.17 billion yuan, a year-on-year increase of 119.2%. In 2022, JCET achieved a total revenue of 33.762 billion yuan, a year-on-year increase of 10.69%; the net profit attributable to the parent company was 3.231 billion yuan, a year-on-year increase of 9.20%. In 2023, due to the overall downturn in the semiconductor market, its revenue scale slightly declined to 29.4 billion yuan, and in that year, JCET's market share in the OSAT market was approximately 10.3%.

The revenue growth trajectory of JCET and Tongfu Microelectronics over the past three years also highlights the vigorous development of mainland China's local chip design companies and the continuous optimization of their customer structure. This trend has propelled Chinese packaging and testing manufacturers to emerge in the global market, with particularly significant growth rates. It is worth mentioning that in 2022, Tongfu Microelectronics, with its outstanding performance, maintained a leading position in revenue growth for three consecutive years in the list of the world's top ten packaging and testing companies, demonstrating the strong strength and development potential of China's packaging and testing industry.

Looking at the market share situation, the table above shows that in 2023, the total market share of Taiwan-based manufacturers in the global outsourcing packaging and testing ranking was 37.73%; the total market share of mainland China manufacturers was 25.83%; and the total market share of U.S. manufacturers was 14.09%. In contrast, in the 2018 global outsourcing packaging and testing ranking, the total market share of Taiwan-based manufacturers was 42.1%, mainland China manufacturers was 20.7%; U.S. manufacturers was 15.4%; and Singapore manufacturers was 2.2%.

By comparison, it is evident that after five years of development and change, the market share of mainland China's packaging and testing manufacturers has steadily increased. This change undoubtedly indicates that in the global competition landscape of packaging and testing markets, the strength of mainland China is gradually strengthening and showing an emerging trend that cannot be ignored.

The third point is that there is intense market competition among the numerous packaging and testing enterprises in mainland China. Due to the overcapacity of some low-end packaging and testing production, the phenomenon of industry involution has occurred, with price levels continuously being lowered. This phenomenon is particularly prominent in the low-end discrete device sector, where many companies compete for market share through low pricing. Faced with changes in market conditions, many packaging and testing manufacturers have begun to re-examine their business layout in China.

However, this also provides opportunities for local packaging and testing enterprises in China. They can enhance their competitiveness by improving technological levels, optimizing production processes, and strengthening market marketing, thereby gradually expanding their market share.

According to data from TrendForce, there are currently nearly 80 foreign-owned packaging and testing factories in mainland China (excluding joint ventures), mainly divided into packaging and testing factories of IDM manufacturers that produce their own products (a small part also provides contract manufacturing services), and outsourced contract manufacturing OSATs.

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Opportunities for the mainland packaging and testing industry are on the horizon.As Moore's Law slows down, the semiconductor industry is facing a transformation. As a key link, the role of packaging and testing technology is becoming increasingly prominent.

The recovery of consumer electronics and the growth of the memory market will boost the packaging and testing industry. The expansion of data centers and the popularization of cloud computing will also bring significant growth to the domestic memory market. In addition, the technological demands of the post-Moore era pose higher requirements for packaging and testing technology.

The development of new energy vehicles and green energy industries brings opportunities for the application of wide bandgap semiconductors. Advanced packaging technology is crucial for ensuring the performance of wide bandgap components. At the same time, the miniaturization and high efficiency of sensors are also a focus of the packaging and testing industry.

So, does China have the capability to take on this series of challenges?

In the past two years, as the scale of the mainland China packaging and testing market continues to rise, domestic packaging and testing companies have also rapidly improved their technical level in the field of advanced packaging.

After years of technological innovation and market accumulation, domestic enterprises' products have evolved from DIP, SoP, SoT, QFP, and other products to more advanced technologies such as QFN/DFN, BGA, CSP, FC, TSV, LGA, WLP, etc., and have achieved more noticeable breakthroughs in technologies such as WLCSP, FC, BGA, and TSV. The production and scale are continuously increasing, gradually narrowing the technological gap with foreign-funded manufacturers, and greatly promoting the development of China's packaging and testing industry. In the emerging field of Chiplet, dozens of companies have also participated.

The achievement of these results is inseparable from the years of technological innovation and market accumulation of domestic packaging and testing enterprises.