Probe Cards & Dart Boards

The wildly varying projections for the semiconductor market in general and the wafer probe market in specific makes me believe that many analysts are simply torn between reporting their tea leaf readings and the scores on their dartboard. A hopefully more reliable source is VLSI Research and their annual probe market survey is eagerly anticipated every spring. One may argue about methodology but on the whole they do an excellent job of painting a comprehensive picture.

Their optimistic forecast is heartening but increased sales volume doesn’t always translate into profits and downturns when they occur can be fatal. Do you prepare for growth like a hare or a tortoise? Do you build excess capacity (“Field of Dreams“), take and fulfill new orders with lots of overtime and temporary workers, or do you forgo new business that bears high incremental start-up costs?

VLSI Research is kind enough to publish a summary of the top company revenues every year. A first glance at the numbers helps to understand the relative size of the market and the top suppliers. I decided to take a more detailed look (with some data mining) to provide some interesting historical perspectives and future trends. Beyond examining the driving trends, how did each of the top companies perform compared to both their competitors and the overall market? Here are some interesting highlights from my analysis.

First, let’s start with the overall market: VLSI Research reported that the overall probe card market was $738 M in 2009, down 29% from $1.0B in 2008. The chart above clearly shows what some call the “roller coaster” nature of the industry with yearly swings as large as 30%.

How the individual companies performed is even more interesting and informative. The probe industry has three distinct vendor segments or tiers:

• The top tier – FormFactor, Micronics Japan Company (MJC) , and Japan Electronic Materials (JEM) each with approximately $100 M / year or more in sales.
• The middle tier – companies in the $30 to 50 M / year sales. Four companies are solidly in this tier: Technoprobe, MicroProbe, SV Probe, and Tokyo Cathode Laboratories (TCL). Two are currently just on the border: TSC Memsys (Phicom) and TSE Co.
• The bottom tier – small companies with less than $30 M / year in sales. Many of the companies are closer to $10 M / year in revenue. (Approximately 30 to 40 companies.)

The top and middle segment companies are shown on this graph:

One can clearly see the extremely fast growth of FormFactor along with the equally steep cliff they fell off in 2008 as the demand for DRAM memory probe cards dried up. The growth of MJC can also be seen from 2005 to 2008 mostly driven by their successful “U-Probe” memory probe cards that provide a competitive alternative to FormFactor. They also performed better than FormFactor in the 2008 downturn assisted by their diversified product portfolio.

For almost every company there is an obvious narrative for their financial performance. Historical changes can be explained based upon “internal” factors such as the success or failure of product developments or “external” factors such as overall market conditions or litigation. Predicting these companies future is harder but there are good clues from their past performance and knowledge of their capabilities.

As I drink my tea, I’ll discuss more that I see in future posts…