Two major IC packaging/testing providers based in Taiwan, Advanced Semiconductor Engineering (ASE) and Siliconware Precision Industries (NASDAQ:SPIL), signed a joint share-exchange memorandum of understanding on May 26 to establish a new holding company. According to the memorandum, each common ASE share will be swapped for a 0.5 share of the holding company, while each common SPIL share will be sold to the holding company at a price of NT$55. Once the deal is approved and completed, ASE and SPIL will become subsidiaries wholly owned by the holding company. However, they will be operating independently as two equal entities, retaining their names and organizational structures. This merger is expected to foster healthy competition between ASE and SPIL as well as improving their positions in the global market.
According to the global market research firm TrendForce, ASE and SPIL currently together account for 15% of the global IC packaging/testing revenue. By supplementing each other's strengths and compensate for each other's weaknesses, both companies will see improvements in economies of scale, operating efficiency and R&D capability. On the whole, ASE-SPIL deal is an advancement opportunity for Taiwanese IC packaging/testing industry as it faces a more difficult environment created by mergers and acquisitions of other large international competitors.
TrendForce noted that the tie-up of the two leading Taiwanese IC packaging/testing companies will accelerate their technology development efforts. Obtaining technological advantages has been crucial in recent years as the global semiconductor sector has undergone rapid consolidation that made the dominant players even larger and stronger. This trend is especially noticeable in the packaging/testing industry, where many deals have taken place.
Current major challenges in the IC packaging/testing industry include the struggle among different maturing technologies and the increasing competitive pressure resulted from the aggressive deal-making of large domestic and foreign players. In the case of Taiwan, local IC packaging/testing companies lack sufficient domestic demand to build up their economies of scale. They have to constantly develop better technologies to stay ahead of foreign rivals in the international market. While ASE-SPIL deal does not guarantee to put them in the forefront of the IC packaging/testing market, it will help direct their energy into R&D. Ongoing breakthroughs are necessary for the Taiwanese IC packaging/testing industry - an integral part of the island's semiconductor manufacturing chain - to maintain its global leadership.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.