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Which company is next in the ATE shakeout?

Posted: 23 Jul 2008     Print Version  Bookmark and Share

Keywords:automatic test equipment  shakeout  Semicon West  semiconductor ATE 

The shakeout in the automatic test equipment (ATE) business is over.

Or is it? At the Semicon West trade show here, there were rumours that Japan's Yokogawa Electric Corp. may put its semiconductor ATE business on the block. Yokogawa also sells industrial automation equipment, instruments and other products, but those lines are apparently not for sale, according to sources.

Yokogawa has a strong presence in Asia, but the company has been nearly invisible in the U.S. market, according to analysts. For its fiscal year, the company's test and measurement group posted an operating loss of Rs.76.22 crore ($17.8 million) on sales of Rs.2,719.11 crore ($635 million). This compares to a operating profit of Rs.44.11 crore ($10.3 million) on sales of Rs.3,148.17 crore ($735.2 million) the previous year.

The Japanese company dismissed the rumour. ''We have no plan at present to divest our ATE business,'' according to a spokesperson from Yokogawa, in an e-mail.

''As you know, market conditions are tough right now. Hence, what we are struggling for in our ATE business is to establish a business structure that can be profitable regardless of what happens in the business environment,'' the spokesperson said. ''In this regard, we are implementing a selection and concentration strategy. However, it does not mean that we will divest the ATE business.''

In any case, it's been a tough cycle for ATE vendors. Many suppliers failed to recover in the last downturn in 2001. And now they face yet another downturn, as the ATE segment is expected to decline by 20.3 per cent in 2008, according to Gartner Inc.

"It's a tough business," said Rod Stewart, general manager of the SOC Business Group at Teradyne Inc., in an interview at Semicon West. "The outlook is not terribly strong'' for the second half of the year.

The net result: more consolidation. The long-awaited consolidation finally hit the ATE market late last year, as Teradyne re-entered the flash-memory test business by buying Nextest Systems Corp. for Rs.1,391.67 crore ($325 million).

Late last year, Verigy Inc., the ATE spin-off of Agilent Technologies Inc., signed a definitive agreement to acquire DFM chip test vendor Inovys.

Continuing to divest its unwanted lines, Credence Systems Corp. in June entered into a definitive agreement to sell its automotive ATE unit in Amerang, Germany to Japan's Advantest Corp. for Rs.21.41 crore ($5 million). And last month, ATE gear rivals Credence and LTX Corp. said they are planning to merge in an all-stock merger of equals.

The shakeout leaves the following competitors in ATE: Advantest, Eagle, LTX-Credence, Teradyne, Verigy, Yokogawa and perhaps a few niche players.

For years, analysts insisted there were too many ATE players going after a non-growth market. Many believe there are still too many vendors. So expect another wave of merger and acquisition activity.

"There needs to be more consolidation," Stewart said. "I would not be surprised to see more of it."

Over time, there is room for only ''three or four major players'' in ATE, said Greg Smith, general manager of the Broadband & Computing Business Unit at Teradyne.

So which company is next in the ATE shakeout? Some question the viability of the LTX-Credence duo. Both are relatively weak players that even struggled during the upturn. LTX Corp.'s management appears to have the upper hand in the LTX-Credence merger hierarchy. There is also product overlap between the two companies, leaving many to wonder about the fate of Credence's Sapphire and other ATE lines.

The net result is that the LTX-Credence duo will most likely become a niche player over time. Eagle is also a niche player, but the vendor has confounded critics and rivals, as it has found a way to make a profit in the ATE downturn.

To save face, Yokogawa will mostly likely find an ATE partner over time. Some wonder if Advantest will assume control over that company's ATE business in the future.

That leaves the ATE industry with three big players: Advantest, Teradyne and Verigy. At one time, it was widely believed that Advantest would trounce its rivals and would become the undisputed champion in ATE.

But even mighty Advantest is struggling. Its memory ATE business is flat on its back amid the downturn in DRAMs and flash. And its system-on-a-chip test unit, which was riding high at one juncture, has fallen on hard times.

Advantest's logic test business exploded in recent times, thanks to the T2000 line of testers. Intel procured a plethora of these testers in the early part of the decade, but that business has dried up at the chip giant.

Verigy and Teradyne have each fared relatively well in logic test, but the hated ATE rivals face some major challenges in NAND ATE. The downturn in NAND presents some major economic challenges for Advantest, Teradyne and Verigy, leaving some to believe there is only room for two NAND flash memory test vendors.

Advantest will most likely protect its base in DRAM and flash ATE. The question is which company—Teradyne or Verigy—is stronger to survive in NAND ATE.

In logic test, there are some hits and misses in the market, but wireless is especially strong. In fact, there is a sea of change in wireless design, as vendors have integrated significant functions on the same device.

Thanks to the trends in wireless, "the first half was good for us," said Teradyne's Stewart. ''That is the dominate driver for us.''

To prepare for the next cycle, Teradyne has introduced five new products in the past five months. Introductions include the UltraWave 12G wireless test instrument, the high density UltraPin800 instrument, the small footprint UltraFLEX-HD test system, the D750Ex LCD driver test system, and the Magnum II memory test system for flash and embedded memory.

- Mark LaPedus
EE Times

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