IFTLE 195 STATS in Play ?…What Consolidation means to you… Micron and TSMC for 3DIC?
By Dr. Phil Garrou, Contributing Editor
The hottest rumor at the 2014 ECTC in Orlando was that STATSChipPAC (SCP) was “in play” (about to be acquired). One version of the rumor had at least 3 bids on the company including GlobalFoundries (IFTLE finds it hard to imaging GF could swallow both IBM and SCP at the same time), ASE and “a group of un-named mainland China companies.” Inquiries to SCP contacts substantiated the rumors although they had no knowledge of the details.
Sure enough the Wall Street Journal on May 16th indicated that SCP was “considering an offer for all its shares.”
When I went straight to the source and asked for a response, SCP sent me a copy of the response they sent to the Singapore stock exchange (the rumors evidently caused the stock shares to jump.
“STATS ChipPAC Ltd (the “Company”) refers to the questions from Singapore Exchange
Securities Trading Limited (the “SGX-ST”) dated 15 May 2014, regarding the unusual price and volume movements in the shares of the Company.
The Company has received a non-binding expression of interest from a third party, with a view to a possible acquisition of all the shares in the Company subject to a number of conditions. The Company regularly conducts strategic reviews of, and considers various proposals in relation to, its business and operations with a view to maximizing shareholder value. The Company is accordingly considering this approach. There is no assurance that this approach will result in any definitive agreement or transaction. Save as set out above, the Company is not aware of any other possible explanation for the trading and the Company confirms its compliance with the listing rules, in particular, Rule 703 of the SGXST Listing Manual.
The Company will make an appropriate announcement in the event that there are any material developments on this matter. Shareholders of the Company and investors are therefore advised to exercise caution when dealing in shares in and other securities of the Company. “
IFTLE has written many blogs detailing how we are in a period of consolidation and how Economics 101 tells us that there is no way to stop it. Let’s take a look at what this really means. I watched this occur in the chemical industry, and I am now watching it again in the electronics industry. For those of you that are business majors, I forgive you if you skip this and go on to something else. For those of you that are “techies” working for IDMs, foundries, material or equipment suppliers, pay attention please because this concerns you.
The 4 stages of a Business Cycle (extracted from GK Deans “The Consolidation Curve,” Harvard Business Rev., 2002.):
Stage 1: In stage 1, the combined market share of the three largest companies is between 10 percent and 30 percent. Companies in stage 1 industries aggressively defend their first-in advantage by building scale, creating a global footprint and establishing barriers to entry, i.e. protecting proprietary technology or ideas. Stage 1 companies focus more on revenue than profit, working to amass market share.
Stage 2: Stage 2 is all about scaling. Major players begin to emerge, buying up competitors. The top three players in a stage 2 industry will own 15 percent – 45 percent of their market, as the industry consolidates. The companies that reach stage 3 must be among the first players in the industry to capture the most important markets and expand their global reach.
Stage 3: Stage 3 companies focus on expanding core business and continuing to aggressively outgrow the competition. The top three industry players will control between 35 percent and 70 percent of the market with five to 12 major players remaining. This is a period of large-scale consolidation plays. Companies in stage 3 industries focus on profitability and pare weak businesses units. The well-entrenched in this phase will attack underperformers. Recognizing start-up competitors early on allows market leaders to decide whether to crush or acquire them. Stage 3 companies should also identify other major players that will likely survive into the next, and final, stage and avoid all-out assaults on them which could leave both players injured.
Stage 4: In stage 4, the top three companies claim as much as 70 percent to 90 percent of the market. Large companies may form alliances with their peers because growth is now more challenging. Companies in stage 4 must defend their leading positions. They must be alert to the danger of being lulled into complacency by their own dominance.
Stage 4 companies must create growth by spinning off new businesses or buying into aligned fields to broaden their market presence.
Let’s take a look at a few examples to bring this closer to home. First, let’s look at DRAM memory consolidation. In 1980, there were 41 listed suppliers  whereas after the recent acquisition of Elpida by Micron we are left with 3 suppliers having > 90 percent of the market .
 M Durcan, “Leveraging Capital Efficiency for Global Leadership”, Semi ISS , 2011
 C Chan, “DRAM Industry Outlook Rational Competition, not a Cartel”, Semi Taiwan, Sept 2013.
How many foundries do we expect to see moving past 22nm? TSMC, GF, Samsung and maybe. That’s it.
Some front-end IC equipment markets have recently been examined.  Each color below represents a different vendor and the dark grey area represents multiple small suppliers. Many of the market segments already have one to three suppliers with combined > 80 percent market share; several segments have 2 suppliers with > 90 percent market share and two segments have 1 supplier with > 75 percent share. All signs of a mature market.
So, the front end is nearing full consolidation. With 450mm stalled and scaling coming to an end this means fewer and fewer fabs moving forward with the latest equipment. What’s a front-end equipment supplier to do?
“Stage 4 companies must create growth by buying into aligned fields to broaden their market presence”
We have all watched as Applied Materials has made their move into the backend equipment sector and even tried to spread their wings a little further into the PV market (ouch!)
Will anyone be surprised as we see LAM and KLA Tencor attempting to do the same? Since the front end suppliers have the deeper pockets IFTLE has expected for a long time that they will eventually buy out back end suppliers as consolidation continues.
Lastly, let’s look at some breakouts of market share in the back end equipment space. Below I am showing a Yole look at equipment market shares in 2011 with names and percentages removed (sorry but they sell this info). We can see consolidation has already begun there as well. As stated above IFTLE expects many of these players to be bought out by the front end players over the next few years.
So whether we find out next week that SCP has been acquired, or not, my message is the same: CONSOLIDATION is underway and will likely affect you and your current employer.
Micron and TSMC?
Josephine Lien at Digitimes is reporting that “TSMC reportedly to tie up with Micron to develop 3D ICs” According to these reports, TSC will integrate Micron’s hybrid memory cube-based DRAM chips with TSMC’s logic chips “through TSV technology.” Lien continues “A successful development of the chip stack technology between DRAM and logic chips will enable TSMC to extend this technology to integrate mobile application processors and DRAM chips, and therefore will help TSMC further expand its client base.”
During the summer months ahead, IFTLE will be giving you full coverage of:
2014 Symposium on Polymers ; 2014 ECTC; 2014 iTherm; 2014 Confab and Semicon West and more…
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