It is an undeniable fact that DRAM assembling&testing (A&T) houses are closely following DRAM makers' expansion, but lesson is learned here. Price fall of DRAM after over expansion in 2006, was resulted in a miserable situation in 1H07. Not only DRAM makers were mostly seeing their operation running below cost, but also A&T houses seeing severe price pressure. Alongside with the rising exposure to global DRAM A&T industry, DRAMeXchange observes that expansion among A&T houses are cautious in nature, given that uncertainties are still filling when heading to DDR3.

The old good days in 2006's DRAM industry not only benefited chipmakers but also backend A&T houses. Bearing the lesson they learned from over expansion in 2000, A&T houses, though being cautious in mind, boosted their DRAM capex in accordance to DRAM makers' expansion plan. Among all Taiwan A&T houses, ASE and SPIL, who both have a relatively high exposure to logic IC, both also joined the DDR2 race in 2H06, filling the DRAM A&T business with more unknowns, according to DRAMeXchange.

Semiconductor industry chain here in Taiwan is comprehensive in terms of the well-structure supply chain. When DRAM makers expand, it spurs corresponding players to expand their backend production capacity also. DRAMeXchange observes that total DDR2 A&T capacity (both wBGA and µBGA) reached 219mn in 2Q07 from Taiwan A&T houses, accounted for almost 40% to global market share. Although Korean DRAM makers are mostly having their DRAM A&T done by in house, expansion among Taiwan chipmakers still encourage A&T houses to expand. DRAMeXchange projects that total DDR2 A&T capacity will grow considerably, resulting in a more than double market share gain at 45% (Figure 1).

A&T houses distinct themselves from rivals alongside with their customers' strategies with some DRAM makers form kind of "virtual alliance" with A&T house. Take PTI for example, it houses a DDR2 (both wBGA and µBGA) monthly capacity of 60-70mn regardless of industry ups and downs. It outperforms peers amid the strong support from its two influential shareholders, Kingston and Elpida. FATC, grouped under Formosa Group, also have its DDR2 capacity surpassing 40mn upon Nanya and Inotera's expansion.

Besides PTI and FATC, ChipMOS and Walton are the respective two performing A&T works for DRAM makers like ProMOS and Winbond. ASE and SPIL, the number-one and three A&T houses globally, have also showed their presences to DDR2. Before DDR2 rising as mainstream, both companies did indeed supplied TSOP capacity to Taiwan DRAM makers. Of which, ASE established PowerASE with PSC, driven by consideration of its substrate business. The company offers a monthly wBGA DDR2 capacity about 10-20mn and has also brought some T5593/5588 testers for turn-key services. SPIL, on the other hand, houses a DDR2 capacity of over 10mn. Overall speaking, DDR2 A&T capacity is sufficient here in Taiwan, DRAMeXchange believes.

Oversupply in DRAM resulted in a price plummet in 1H07. DRAM ASP dipped almost 55% YoY in 2Q07, prompting fellow DRAM makers bleed in red in terms of production cost. Take the latest US$1.70 DDR2 contract price for example, A&T accounted for over 30% of total cost. Being expose to such a severe cost situation, DRAM makers thus reduce chip testing time or ship directly in wafer forms in order to minimize their cost. But it also results in a reduction of utilization rate among A&T houses. Besides seeing lowering utilization rate, A&T houses are also exposing to heavier price bargain pressure, as DRAM makers strive to suppress A&T cost to total cost within 20% range.

Severe price pressure on DDR2, as well as uncertainty about DDR3, are also holding off A&T houses' expansion. Some DRAM makers choose to use the present wBGA but some are considering adopting µBGA due to reliability and performance concerns (Figure 2). In addition to the aforementioned solutions, some are also considering to adopt Wafer level CSP (chip-scale packaging) (Figure 3), given that cost can be saved by including lead frame and other component. Yet, complexity is a key barrier here for Wafer level CSP. Flip-Chip (FC) is also an alternative for DDR3 due to its good conductive nature, small size, good heat dissipation and high performance, etc. But price is high for FC as well. Under the concern of an uncertain DDR3 prospect, A&T houses tend to be conservative over their move, which, somehow, should helps the DRAM A&T industry trend more healthy, DRAMeXchange notes.