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Wall Street down on ATE industry

Posted: 29 Aug 2005 ?? ?Print Version ?Bookmark and Share

Keywords:automatic test equipment?

The automatic test equipment (ATE) industry is finally showing some signs of life after a major slump, but Wall Street remains disappointed with the loss-ridden sector.

On Thursday (August 25), two ATE vendors - Credence Systems Corp. and LTX Corp. - separately reported improving sales but also posted significant losses for the quarter (see August 25 story). By mid-Friday (August 26), shares were down by over 17 percent for Credence and 25 percent at LTX.

ATE giant Teradyne Inc. has also posted a string of losses and Agilent Technologies Inc. has recently put its IC-test and chip units on the block (see August 15 story).

Japan's Advantest Corp. remains the only profitable ATE vendor, but the company is also experiencing a slump in its memory-test business in the first half of 2005. Shares at Advantest, Agilent and Teradyne were up nearly 1 percent on Friday.

"Overall, the ATE industry is showing some improvement," said analyst Dennis Wassung, who watches the sector for investment banking firm Adams Harkness Inc. (Boston).

"I think we're in the early stages of a recovery, but it's slower than Wall Street had expected," Wassung said. "I think the IDMs are spending money on ATE. The subcontractors are still cautious."

ATE "is going through a classical cycle," added Risto Puhakka, president of VLSI Research Inc. "All of the vendors are hurting."

In total, the ATE industry is expected to reach $4.9 billion in 2005, up 10 percent from $4.6 billion in 2004, according to VLSI Research.

Of that, the memory-test business is expected to hit $2 billion in 2005, up from $1.7 billion in 2004, according to the research firm. The system-on-a-chip (SoC) ATE sector is projected to reach $2 billion in 2005, flat from the previous year, according to the firm.

It's a mixed picture at the ATE houses. For example, Credence (Milpitas, Calif.) this week reported sales of $112 million for the quarter, versus Wall Street's estimate of $109 million. It posted a pro forma EPS at break-even, versus Wall Street's loss estimate $0.02, said Bill Ong, an analyst with American Technology Research Inc. in San Francisco.

ATE "utilization rates continue to expand, with the industry now seeing rates in the high 80 percent to low 90 percent range, further stimulating Credence's product demand," Ong said in a report. "August continues to see ongoing strength and increased spending is expected to last well into 2006."

Credence's SoC tester gained ground in the quarter. Overall, the company expects October quarter revenue to be sequentially flat-to-up 7 percent, along with pro forma EPS of $0.00-to-$0.04.

Another ATE house, LTX, reported a loss of $0.10 a share on sales of $38.9 million for the quarter, versus Wassung's estimates of a deficit of $0.10 on sales of $39 million.

"Management remains encouraged by overall conditions, confident that the early stages of the next industry growth cycle are taking place," Wassung said. "LTX pointed to the importance of Q1 orders as an indicator of the strength of the current upturn, looking for flat to slightly higher bookings in a seasonally slow quarter."

There other positive signs for the company. "As expected, LTX shipped its new Fusion EX product in the quarter, receiving multiple orders -- including from its largest customer, Texas Instruments. Management also discussed a third-generation digital-test-focused Fusion product, expected to ship in Q1. The new unnamed product will target the more pricing-sensitive digital market," he said.

Going forward, LTX provided guidance of $43-to-45 million in sales and a loss of $0.08-to-$0.10.

- Mark LaPedus

EE Times

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