ATE: The Road Ahead

Watching the ATE market is like having a front-row seat to watch the semiconductor industry’s ups and downs, with none of the hype to confuse you.

So 2014 was a very good market for SoC test, and it likewise a good year for SoCs. As we head into the latter half of this year and into 2016, however, a projected downturn in the mobile arena will likely put a crimp in those earnings.

The problem, at least on the surface, is that the mobile market—particularly smart phones and tablets—has hit a saturation point. Whether wearables, the IoT and lower-end smart phones can quickly ramp up to the point where the number of SoCs being produced and tested is flat to up remains unknown. But in the absence of data in this arena, which would be pure speculation at this point, both Teradyne and Advantest are positioning themselves for some belt-tightening.

“For both Teradyne and Advantest, I’d say their six-month view matches with what I see,” said Mark Stromberg, a principal research analyst with Gartner. That essentially means near-term growth, at least through the midterm. “However, I see a very poor general macro environment as we approach 2016,” he said. “Test is expected to be down by 12% next year. 2017 is expected to be the recovery year.”

Teradyne, Advantest: two thumbs up
At the very least, 2014 will be a hard year to beat.

“2014 was a very good year for Teradyne, with sales up about 15% and non-GAAP operating profit up over 25%,” said Mark Jagiela, president and CEO of Teradyne, during a conference call with analysts. “Most of this gain came from our semiconductor test business, where sales and profits grew 27% and 50%, respectively.

Teradyne attributed the growth in 2014 to a robust SoC test market in which it gained two share points — the company claims 50% of this $2.3 billion dollar market segment. “Mobility devices, such as applications processors, wireless transceivers and power management ICs, all posted above-average demand in the year as the combination of new nodes, higher-than-average complexity advances and a wider proliferation of new product introductions drove demand,” Jagiela said.

He noted that the memory market was flat year-over-year at about $500 million, and that Teradyne picked up one point of market share for a total of 27%.

Tokyo-based Advantest also saw significant growth in 2014 compared with 2013. Like Teradyne, Advantest saw an increasing demand led by semiconductors used in mobile handsets — namely in China following the launch of LTE communications in the Chinese market in late 2013. Thus for the nine months ending Dec. 31 (the company is currently in the middle of its fiscal Q4), 2014, orders were $1.052 billion (126.1 billion yen) while net sales were about $1 billion (119.9 billion yen) — increases of 42.7% and 51.3%, respectively, in comparison to the corresponding period of fiscal 2013. The company also enjoyed a higher ratio of sales of products with a higher margin in 2014, which in turn led to a tidy profit: operating income was $81.8 million (9.8 billion yen) while net income was $78.8 million (9.2 billion yen).

“In our core semiconductor and component test system business, we anticipate that brisk non-memory tester demand will continue,” Shinichiro Kuroe, Advantest president and CEO, said in a statement. “Last year, non-memory testers led the tester market recovery, but we see memory tester demand picking up from Q4.”

But what is going to happen this year? And next year?
“Looking forward, we see the 2015 SoC test market in the $1.9 billion to $2.2 billion range,” said Teradyne’s Jagiela. “Coming off an above-average year for mobile device test tooling in 2014, we expect to see the same pattern we’ve seen over the past five years. This year’s capacity will fall below the average as mobile device’s test additions from 2014 are digested and optimized.” He then expects a surge later in 2016. Other SoC segments, including linear, mixed signal, automotive and MCUs are expected to be flat to up 3% year over year.

“Stepping back to a broader perspective … we still see a nominal $2.2 billion SoC market growing 3% to 5% over the midterm, assuming an 8% unit growth rate in semiconductors,” Jagiela said. “At the same time, we expect this pattern of year-to-year and seasonal swings to remain a part of the SoC test market over the next few years.”

Advantest, however, expects to see growth, at least through the midterm, spurred in large part by memory. “In 2015 Advantest expects DRAM and NAND flash memory for smartphones and data centers to lead growth in the semiconductor market,” said Kuroe. Specifically, the latest high-end handsets is driving the demand for LPDDR4 chips — slated to ramp this year and next — which means faster memory, lower power consumption, and more memory capacity per handset, he said. Consequently, LPDDR4’s faster data rate will increase demand for Advantest’s new T5503HS tester.

Similar trends are taking place in big data. The adoption of DDR4 will boost memory speeds. Furthermore, the popularity of SSDs using high-speed, low-power NAND flash memory is also on the rise. The expansion of the high-speed NAND market will lift the tester market in general and the Advantest T5831 tester in particular, Kuroe said.

While the overall memory market is remains essentially flat at $500 million, higher speed interfaces in both flash and DRAM continue to grow and swing more of the market to the sweet spot of Teradyne’s product offerings, and the company plans to improve on its market share by two three points this year. Storage test continues its recovery as well, as revenue more than doubled year-on-year, and the group returned to profitability in the fourth quarter, said Jagiela. “Steady progress in SSD testing has led much of the recovery, and the traditional hard disk drive test business is also showing signs of recovery.

“As we look to 2015, we see a return to buying in the enterprise and cloud-based storage drive market as well as continued demand in the SSD space,” he said. “We expect double-digit revenue growth and the group to be back at model profit for the year.”

Xcerra weighs in
The third ATE player these days, Xcerra Corp. (formerly LTX-Credence) essentially mirrored what Teradyne and Advantest saw.

“The overall market, we don’t disagree with the analysts out there; we don’t disagree with the competitive result — that we do see a decline in the overall market from 2014 to 2015,” said David G. Tacelli, Xcerra president and CEO. “However, we do see the areas that we focus on—mobility, automotive, consumer, and the growing applications for Internet of Things—driving a higher market specifically for Xcerra.

He noted that the next driver for the company is custom mechanical-engineered equipment for back-end test, which will be followed by integrated test cells for automotive radar and integrated MEMS. “I don’t think it’s the revenue driver in 2015, I think it’s a revenue driver in 2016 and beyond,” he said.