UMS Holdings

[Boon]

Worldwide Smartphone Shipments Edge Past 300 Million Units in the Second Quarter; Android and iOS Devices Account for 96% of the Global Market, According to IDC

14 Aug 2014

FRAMINGHAM, Mass. August 14, 2014 – The worldwide smartphone market reached a new milestone in the second quarter of 2014 (2Q14), moving past the 300 million unit mark for the first time in its history. According to final data from the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, vendors shipped a total of 301.3 million smartphones worldwide in 2Q14, up 25.3% from the 240.5 million units shipped in the second quarter of 2013........................................

http://www.idc.com/getdoc.jsp?containerId=prUS25037214
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TSMC 4Q14 production capacity almost fully booked

Cage Chao, Taipei; Steve Shen, DIGITIMES [Thursday 14 August 2014]

Taiwan Semiconductor Manufacturing Company (TSMC) has informed Taiwan-based IC design houses that its production capacity for the fourth quarter of 2014 is almost fully booked, and urged vendors which are short of production capacity to book wafer orders in advance, according to industry sources.

While the supply of wafers at TSMC is tight for the third quarter, the nearly sold-out wafer production for the fourth quarter at TSMC has placed most IC design houses in a dilemma as to whether they should queue up at TSMC for capacity...............................

http://www.digitimes.com/news/a20140814PD214.html
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TSMC July sales hit new high

2014/08/08 18:35:13

Taipei, Aug. 7 (CNA) Taiwan Semiconductor Manufacturing Co. (TSMC), the world's largest contract chip maker, hit a new monthly high for sales in July that analysts attributed to solid demand for chips crafted with TSMC's advanced technology....................

http://focustaiwan.tw/news/aeco/201408080026.aspx
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TSMC Approves $3bn Capex

14th August 2014

TSMC’s board has passed a resolution to “approve appropriations of US$3,054.7 million for expansion of advanced capacity, conversion of certain logic capacity to specialty technologies, building and facility installation as well as capacity setup for advanced packaging and assembly, and fourth quarter 2014 R&D capital appropriations and sustaining capital appropriations.” If this is new capex spend, which it looks like, then it will take TSMC’s capex to $13 billion this year ahead of the $11.5 billion being spent by Samsung and the $11 billion being spent by Intel..........................................

See more at: http://www.electronicsweekly.com/manneri...FgeqN.dpuf
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450mm Development Status Reports from SEMIcon West 2014

http://www.semi.org/en/node/50891?id=highlights

(vested)

[Boon]

I was looking at results of other major semiconductor-equipment makers – generally, they are in similar situation as AMAT - expect revenue to be down for next Q ending Sep-2014 and up again on subsequent Q ending Dec-2014.

Somehow, "actual" demand appear to be fall short of SEMI's "projected" demand so far this year - there seems to be a "dis-connect" some where

SPE Division (Tokyo Electron) : Revenue (Billion Yen)
Q Ending Mar-2014 =181.7
Q Ending Jun-2014) =136.1
Expects next Q to be flat

Lam Research (USD Billion):
Q Ending Mar-2014 =1.227
Q Ending Jun-2014) =1.248
Expects next Q to be DOWN (revenue between 1.050 to 1.150)

KLA-Tencor (USD Billion)
Q Ending Mar-2014 =0.832
Q Ending Jun-2014) =0.734
Expects next Q to be DOWN (revenue between 0.590 to 0.650)

(vested)

[artreal]

Hi VB fellows,

I am trying to understand the business of UMS. Do they just get steel and CNC the steel into all different precision component used as part of those Semicon equipment?
So their really have no supplier risk? The concern is really on the AMAT single customer risk, I suppose?

The component they made are so good that AMAT has no tendency to replace them? Or it's just because their plant is in Singapore/Penang and hence they are logistically more cheap?

If logistic is the main reason for UMS to be chosen, do you think it can be replaced by another precision machining company in this region? Are the 40 some special process (mentioned in their website) their moat to prevent that from happening?

thanks a lot !
artreal

[Boon]

Hi VB fellows,

I am trying to understand the business of UMS. Do they just get steel and CNC the steel into all different precision component used as part of those Semicon equipment?
So their really have no supplier risk? The concern is really on the AMAT single customer risk, I suppose?

The component they made are so good that AMAT has no tendency to replace them? Or it's just because their plant is in Singapore/Penang and hence they are logistically more cheap?

If logistic is the main reason for UMS to be chosen, do you think it can be replaced by another precision machining company in this region? Are the 40 some special process (mentioned in their website) their moat to prevent that from happening?

thanks a lot !
artreal

Hi artreal,

This might be a better approach - try to understand what AMAT does first before trying to understand what UMS does for AMAT.

http://www.appliedmaterials.com/company/...w-we-do-it

I suggest you watch the above video by AMAT on “how to make a chip”, and try to understand the basic process steps involved in the chip making

Film Deposition:
- CVD – Epi
- PVD
- ECP
Photolithography: Patterning
Film Removal: Etch
-
Ion Implantation: doping – RTP

Inter-connects : copper {logic devices, aluminum (memory)}
- CVD, PVD, ECP
- ALD (a type of CVD)
- CMP

Metrology and Inspection.

(vested)

[artreal]

Thank you Boon. The video is a great eye-opener for me. But I still feel disconnected on what UMS does for AMAT.

I understand that AMAT produces equipment which can complete the processes make chips. And UMS probably produce, integrate, refurbish/maintain certain components in those machines.

To my understanding the value contribution of UMS to AMAT are probably:
1) technical know-how
2) proximity, which shorten the logistics and supply chain to the Singapore AMAT plant.

If that's the case, would you please tell more about their strength in point 1)?
And also, if point 2) is important, it could mean it is difficult for UMS to expand? the failed Korea initiative a few years ago?

Also, can I still confirm that in terms of supplier to UMS, since the precision components are produced by itself, there is not much of a risk?

Thanks,
artreal

[Boon]

hi artreal,

Here are AMAT’s semiconductor equipment products with different processing capabilities
http://www.appliedmaterials.com/semiconductor/products

Here are AMAT’s Endura platform - the most successful metallization system in the history of the semiconductor industry.
http://www.appliedmaterials.com/semicond...cts/endura

Here is a video showing robotic movement of Endura 5500
http://www.youtube.com/watch?v=O7BBjxez4M4

According to OSK/DMG:
UMSH is near-exclusive assembler of Endura system. UMSH generates revenue from Applied Materials in two key ways, namely: i) the manufacturing of metallic components used in the assembly of Applied Materials’ semiconductor equipment as well as consumables for its customers, and ii) acts as the near-exclusive assembly and testing services provider for Applied Materials’ popular Endura system (90%
global market share). These are subsequently sold to integrated device
manufacturers (IDMs) such as Intel, front-end wafer manufacturers such as TSMC, and back-end packaging and testing services providers such as STATS ChipPAC, which use them in the manufacturing of integrated circuits, memory chips and the like. These are all core components of personal computers (PCs), laptops, smartphones, tablets and other mobile devices.
http://research.osk188.com/attachments/5...a38e82.pdf

Accoding to Maybank/KimEng:
UMS has a five-year supply contract with AMAT to machine and manufacture components, sub-modules and whole systems for the latter’s Endura vapour deposition equipment from 2012 to 2017. As a result, as much as 80% of UMS’s revenue comes from AMAT such that a comparison of the two companies’ sales trends would look like they are the same company! Some investors may not like this single-customer, single-product dependency.
However, AMAT gives UMS a fixed percentage allocation (~80%) of its annual requirements at a fixed margin. In addition, this contract is renewable for another five years after 2017. In our view, UMS’s OEM business with AMAT appears to be sustainable.
We can think of two reasons why the two companies have such a strong relationship.
• First, their factories in Singapore are just five minutes apart. Competitors may be able to offer better pricing but they will never beat UMS in terms of speed to respond. According to management, AMAT practically treats UMS as its extension factory. This makes it difficult for a competitor to break into the business.
• Second, UMS also offers a comprehensive suite of more than 70 metal finishing processes in-house that its competitors cannot, such as chemical cleaning, anodizing and plating.
In addition, UMS is in the process of moving more of its Singapore production to a larger plant in Penang to take advantage of the island’s tax-free status and easier access to labour. The possibility of lower cost should further cement its relationship with AMAT.
http://research.maybank-ib.com/pdf/docum...4_5643.pdf

So, basically UMS acts as a “system integrator” of Endura systems + supply components to AMAT

To be continued...........................................

(vested)

[specuvestor]

^^ I think they are more like OEM than S.I. I don't think UMS talk to the end clients of AMAT.

artreal we actually discussed about this 3 months ago:
http://www.valuebuddies.com/thread-2094-...l#pid83872

[Tiggerbee]

^^ I think they are more like OEM than S.I. I don't think UMS talk to the end clients of AMAT.

artreal we actually discussed about this 3 months ago:
http://www.valuebuddies.com/thread-2094-...l#pid83872

When AMAT still had the operations in Austin, the field service engineer and the customer will conduct a 1 week final inspection on site, before the equipment tool is shipped to the customer's fab. Not sure if this is done so at UMS' Penang site. Unless AMAT does not allow the customer to perform the final inspection since the assy and final test operations are outsourced to UMS.

[artreal]

This is great info, Boon, and Specuvestor.
Your ability to research is amazing.

[Boon]

AMAT has 4 business segments and its semiconductor equipment business is under SSG:
- Energy and Environmental Solutions (EES)
- Display
- Applied Global Services (AGS)
- Silicon Systems Group (SSG)

In 2013:
Sales for SSG = USD 4.775 billion
Sales for Endura systems = about USD 1.2 billion. (see post#870)
Revenue of UMS = SGD 120 million or say about USD 96 million

According to Maybank/KimEng, UMS gets to do 80% “system integration” work of Endura systems.

If UMS were OEM of the entire 80% of Endura => equivalent sales value for AMAT would be 0.8 x USD 1.2 billion = USD 960 million.

How could AMAT “outsourced” the entire 80% of Endura work to UMS at USD 96 million and sell them at USD 960 million – the math simply doesn’t make sense.

To me, with respect to what UMS does for AMAT – it is more like a System Integrator than an OEM.

AMAT’s Endura system includes a central mainframe chamber surrounded by three to nine reactors. More of these modules must run in a vacuum to prevent impurities from damaging the ever-thinner film depositions on wafers.

Whether it is more like an OEM or S.I. is of less importance – more importantly, UMS has the skill sets or technical know how to do the jobs for AMAT – be these skill sets been acquired from AMAT and/or co-developed between UMS and AMAT.

According to Maybank/KimEng: “UMS also offers a comprehensive suite of more than 70 metal finishing processes in-house that its competitors cannot, such as chemical cleaning, anodizing and plating.” – Wondering how reliable is the statement ?

(vested)