The right investments will prepare companies for tomorrow.

The economic direction for 2009 is clear; it is the magnitude and duration that are not certain at this point. The big question is, What will be the industry’s response to this economic recession, and how can companies prepare for the eventual upturn? Are there any bright spots?

Despite emergency lending programs in the US, Europe, Japan, Canada, China and elsewhere, the global financial crisis has escalated. The failure of Lehman Brothers, a major financial firm that did not receive a bailout, may ultimately be recognized as the card that brought the house down.¹ Some financial analysts estimate it will be longer than a year before a recovery is possible. The subprime mortgage crisis that launched the financial meltdown was amplified by unregulated credit default swaps that became worthless. The credit crisis is not expected to be resolved until transparency and trust are restored in the financial sector. Meanwhile, economic conditions have deteriorated around the globe, and unemployment rates are rising.

Many governments are enacting economic stimulus plans designed to create jobs. China announced a $586 billion spending package that calls for new housing, roads, railways and airports, as well as rebuilding areas devastated by the May 12, 2008 earthquake.² Under the Obama administration, the US will also launch an economic stimulus program that focuses on job creation. Hopefully, it will also include plans for improvements in the telecommunications infrastructure, as well as improvements to roads and bridges. These plans are expected to be effective, but will require time to succeed.

Packaging retains investment. Last month’s SEMICon Japan had 72 fewer exhibitors (1,476) than participated in December 2007. Much of the conversation focused on the amount of spending on equipment that will actually take place in 2009. Many companies are now focused on introducing lower-cost versions of existing equipment to generate sales during the downturn. Several companies in both fab and the backend have already announced lower capital spending for the coming year. TSMC, UMC and others have reported lower capex plans, while IC packaging subcontract assembly companies are expected to trim spending as well. Spending plans vary by company and region. Samsung is rumored to have announced plans to spend nothing on the backend. However, in Thailand, Hana Semiconductor, backed by Japan’s Daikin Industries and the Hana Group, is committing to spend around $14 million (522 million baht) on projects for hard-disk drives, ICs, wafers for solar cells, and LEDs.³

One of the few bright spots in the backend assembly business is in advanced packaging, including flip chip and wafer-level packaging. Several companies have maintained plans to invest in bumping and WLPs, including fan-out packages. Demand for 300 mm WLP is expected to encourage some continued capacity expansion.

Through silicon via (TSV) technology continues to be a hot spot, as production of image sensors ramps up and R&D continues in many other areas. Toshiba presented details of its TSV for camera modules at a SEMICon Japan seminar.⁴ While the potential for memory applications such as DRAM holds promise, adoption in processor and other logic applications remains in development. Many operations use 200 mm equipment today, and with the need for future 300 mm process capability, an opportunity exists for equipment makers. Additional work is required in design tools and test, providing opportunities for many. With R&D expected to continue in 2009, despite the slower economy, opportunities remain for smart players.

While there is some slowdown in LEDs for mobile phones and portable electronics with the lower unit volues, high brightness LEDs are expected to see continued growth, as use of LEDs increases in signage, automotive, signaling and illumination applications. For example, in the near future most gas stations in Japan will use LED lighting. Governments around the world continue to encourage, and in some cases, mandate LED use.

Some areas have cooled. For example, the gold rush in solar seems over. Plans have been canceled with the economic decline and falling oil prices. Environmental concerns also have slowed some solar plans in the US.⁵

Many in the EMS and broader electronics industry will cut workers and stop investing as a result of the credit crisis. Even mighty Foxconn is said to be laying off thousands of employees. Some companies with cash will take advantage of the downturn to prepare for the eventual return of economic growth. This will take the form of continued R&D, acquisitions in key technology areas, and careful management of resources. TSMC’s Jason Chen, vice president of worldwide sales and marketing, says TSMC will innovate its way out of the downturn. TSMC will reduce manufacturing costs and expenses and structurally improve costs, but equally important, it will continue to build capabilities in both advanced and mainstream technologies. TSMC’s 40 nm process technology is one of the key areas. Companies in other sectors of the electronics industry that position themselves well also will be the winners when the upturn finally begins.

References

1. J. Nocera and E.L. Andrews, “Running a Step Behind as a Crisis Raged,” The New York Times, Oct. 23, 2008, p. 1.
2. C. MacLeod, “China’s Economic Stimulus Plan Targets Infrastructure,” USA Today, Nov. 12, 2008, p.8A.
3. “Hana Semiconductor is Spending 522.4 Million Baht to Raise the Capacity of IC and IC Testing Equipment in Thailand,” Bangkok Post, Dec. 7, 2008.
4. K. Tomioka, “Application Through silicon Via for Camera Module,” SEMICon Japan, Dec. 5, 2008.
5. T. Woody, “Inside the Solar Gold Rush,” Fortune, July 21, 2008, p. 110.

E. Jan Vardaman is president of TechSearch International, (techsearchinc.com); jan@techsearchinc.com. Her column appears bimonthly.