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WIKI ANALYSIS
Singapore-based STATS ChipPAC, Ltd. (STTS) is a leading provider of semiconductor assembly and test services to fabless companies, integrated device manufacturers and wafer foundries. ST Assembly Test Services, Ltd. completed the major acquisition of ChipPAC, Inc. on August 5, 2004. In the tax-free transaction, each ChipPAC shareholder received 0.87 STATS American Depositary Shares (ADS), a total of 86.29 ADSs being issued. This acquisition roughly doubled the revenue of standalone STATS. Management asserted that earnings would be accretive even without synergies. Cost synergies are expected to be between $25 30 million per year, excluding capital expenditure synergies. Management did not quantify revenue synergies explicitly, but acknowledged that the organizations have complimentary services, which should lead to cross-selling opportunities. Management estimated that $1 2 million in cost savings were realized during the September quarter, but would not quantify the results for the December quarter. The company has key operations in Singapore, China, Malaysia and Korea, with additional operations in Taiwan and the United States.
The company serves the $10.2 billion packaging and test market that is forecasted to grow at a 19.6% compounded annual growth rate (CAGR) through 2007. This rate is greater than the overall expected semiconductor industry CAGR, as companies continue to outsource an increasing amount of business. In the June 2004 quarter, STATS and ChipPAC reported $139 million and $143 million in revenue, respectively. The merger combines the fourth and sixth largest players into a new company that now moves into the third slot in terms of fiscal 2003 revenue of $810 million (behind ASE at $1,731 million and Amkor at $1,604 million). In terms of end markets served, STATS was communications heavy and ChipPAC was consumer biased combined, the split is now communications 49%, computing 24% and consumer 27%. STATS was biased to test, while ChipPAC was heavily tilted to assembly, and together it is a 34 66% split towards test.
Within the communications market, the company offers services for some of the attractive high growth segments such as data networking, broadband and mobile communications. The company has specific expertise in testing RF (radio frequency) and mixed-signal semiconductors. Key customers include Analog Devices (20.6% of 2004 revenue), Broadcom (11.1%), Marvell (8.5%), Qualcomm, Texas Instruments, Motorola and STMicro. In the computing segment, STTS provides substrate and assembly services for motherboards. Key customers include IBM, Fairchild, LSI, NVIDIA, Intersil, Texas Instruments and STMicro. In the consumer segment, STTS has a leadership position in stacked die packaging for DSPs (digital signal processing) and flash used in small form factor applications such as PDAs, digital cameras, DVD players and gaming consoles. Key customers include Samsung, Broadcom, Atmel, Conexant, Cirrus, Motorola and NVIDIA. The company has particular strength in power, analog and discrete packaging. Key customers include International Rectifier, NEC, Fairchild and ON Semiconductor. The top ten customers in 2004 generated 67% of total revenue.
STTS's strongest competitors are large assembly and test service providers with a strong base in Asia like Advanced Semiconductor Engineering (ASE), Amkor Technology, ASE Test, ASAT Holdings Limited and Siliconware Precision Industries. Geographically, United States sales accounted for 77.4% of total 2004 revenue, followed by Asia with 18.3% and Europe with the remaining 4.3%.
Comparison to Competitors
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