By Li Panpan

(JW Insights) Jul 25 -- China's packaging and testing industry has not shown signs of bottoming out, although there were improved order volumes in the second quarter of this year. Both leading and small and medium-sized manufacturers have to deal with varying degrees of vacant production capacity; The price of traditional packaging reached the lowest, JW Insights learned from interviews with industry executives.

The top tier makers JCET, HT Technology, Tongfu Microelectronics, and WLCSP recently released their performance forecast for the first half of 2023. Their net profit declined to a large extent compared with last year, and their performance in Q2 has picked up with the upcoming traditional peak season and semiconductor destocking coming to an end.

The revenue of Tongfu Microelectronics in Q2 increased slightly compared to Q1, while the net profit of JCET, HT Technology, and WLCSP in Q2 increased significantly in the same period.

However, the improved performance does not mean that the semiconductor packaging and testing industry has bottomed out in Q2 this year.

"Currently, the order volume of the packaging and testing industry has increased slightly, but the major manufacturers have not achieved full production capacity. The industry is severely competitive, with constant price declines by packaging and testing suppliers.

The performance of the above-mentioned large packaging and testing manufacturers also declined seriously this year compared with 2022. They blamed the reduced demand caused by the semiconductor industry downturn, which resulted in overcapacity.

Compared with large-sized manufacturers that have achieved a relatively stable operation by working with big customers, small and medium-sized semiconductor packaging and testing manufacturers have faced a continuous decline in orders since Q1 of 2022, and insufficient capacity utilization is even more serious, especially in the past two years.

Due to the overcapacity of packaging and testing, the price cut could be more severe. Leading manufacturers cut prices for more orders to stabilize market share. Industry insiders said some leading Chinese packaging and testing manufacturer has low costs, so their price cut is ruthless, with a relatively high capacity utilization rate.

An executive from a leading Chinese analog IC manufacturer also revealed that to cope with fierce market competition, it cut prices for major customers and important markets in the first half of the year and transferred the cost pressure to upstream fabs and packaging and testing factories.

The overall semiconductor packaging and testing market started to cut prices in Q1 of 2022, while the price of traditional packaging products dropped sharply as early as the end of 2021. The price war has lasted for a year and a half, with the price of traditional packaging products falling to the lowest.

Chippacking Technology said its customers are very cautious in placing orders, and its product prices are lower than in 2019, which is the bottom of the last round of the semiconductor cycle.

A senior packaging and testing company executive said that although product prices of advanced packaging have also dropped a lot, the overall competition is far less intense than in the traditional market, with a much better gross profit margin.

"Currently, Chinese semiconductor packaging and testing manufacturers are making little profit or operating at no profit. It is impossible for product prices to fall again. The worst situation has passed, or the worst is the current," said the executive.

However, with the uncertain global economic outlook, "the worst has passed" does not mean the market has bottomed out.

"The market demand for communication devices, consumer electronics, and PCs has all declined, while demand for new energy vehicles, photovoltaics, energy storage, and other emerging markets with high hopes has also weakened. The market rebound has not yet appeared," added the executive.

Another packaging and testing company executive pointed out, "The current market has entered the deep water area, and the winter is still ongoing. The Q3 market rebound that the industry expected before will not come soon, at least not before next year's Q2."