Intel orders energize Taiwan's flip-chip substrate supplier

Huge orders from Intel are expected to give a strong boost to Taiwan's flip-chip substrate manufacturers in the fourth quarter of this year. Intel, the world's biggest supplier of central processing units (CPUs), is struggling to fill a flood of demand for its products.

Following price cuts of 50% on its Core 2 Quad Q6000 CPUs and other reductions on Conroe and Kentsfild CPUs, Intel has experienced heated demand for those products. In addition, demand is expected to soar in the mid-August back-to-school season and the upcoming shopping season that will begin in October. To fill that demand, Intel is feverishly outsourcing the production of huge amounts of the flip-chip substrates it needs for its CPUs and chipsets.

Some independent chipset makers, such as the NVIDIA Corp., VIA Technology Inc., and Silicon Integrated Systems Corp., are following Intel's lead in placing increased orders for the substrates.

Intel currently sources its substrates from the Ibiden Co., Sinko Electronic Industries Co., and NGK Spark Plug Co. of Japan, as well as the Nan Ya PCB Corp. of Taiwan. With the explosive growth in orders, however, the production lines of these manufacturers are fully booked and the supply of substrates has become tight.

At the present time Intel takes about 60% of the total global supply of flip-chip substrates. Makers of chipsets supply about 25-30% of this amount, with suppliers of systems-on-a-chip accounting for the rest.

The other leading CPU supplier, Advanced Micro Devices Inc. (AMD), does not affect the market for flip-chip substrates very much because it uses mainly ceramic substrates.

The tight-supply situation is likely to get worse, as Intel plans to launch mass production using its new 45-nanometer process in the second half of this year and to introduce 15 new CPU models in the fourth quarter.

Another supply-and-demand factor is Intel's planned switch of specification for its flip-chip substrates from X64 to X66, requiring additional layers of processing and 30-40% more production capacity.

Taiwan's Nan Ya PCB Corp. will obviously benefit from these developments. The company has already boosted the utilization rate of its production lines to 100%, and is poised to report record revenues in August. In fact, Nan Ya has been forced to pass some orders for chipsets, graphic cards, and system-on-a-chip applications to other Taiwanese makers of substrates, such as the Phoenix Precision Technology Corp. and Kinsus Interconnect Technology Corp.

Thanks to the soaring orders from Intel, Nan Ya's revenues are expected to hit a new high of NT$10 billion in the third quarter of this year. Institutional investors believe that its gross profit margin will surge to 28-29%, up from 20% in the second quarter.
Nan Ya PCB's Projected Profits for 2007

Nan Ya PCB’s Projected Profits for 2007
　	Q1	Q2	Q3	Q4	Total
Sales Revenue	9.134	7.841	10.022	10.557	37.554
Gross Profit Rate	21.7%	19.5%	28.2%	28.5%	24.9%
Profits on Operation	1.682	1.242	2.492	2.649	8.066
Net Profits	1.923	1.424	2.742	2.836	8.925
Earnings Per Share	NT$3.2	NT$2.37	NT$4.56	NT$4.71	NT$14.85
Production Capacity of FC Substrates	75 M. Units	76 M. Units	90 M. Units	90 M. Units	331 M. Units

Unit: NT$1 Billion

Source & copyright: CENS