ITEC Delivers Solid Q1 Test Service Performance... "Significant Growth Expected in Second Half"

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Semiconductor test house ITEC delivered solid results through diversification of its client base.

On May 15, ITEC announced that it recorded standalone sales of 10.21 billion KRW (down 1.7% year-on-year) and consolidated sales of 13.8 billion KRW (down 3.5% year-on-year).

According to the first quarter report for 2024 on the test service industry, most companies reported declining sales and lower profit margins. Competitors serving integrated device manufacturers saw their sales decrease by around 20% on average, and their operating margins, which were in the single digits in 2024, turned negative.

Nevertheless, ITEC's semiconductor service division managed to perform relatively well, with only a 1.7% decrease in sales and achieving breakeven at the operating profit level.

Generally, a semiconductor test house refers to a specialized company that inspects wafers and semiconductor chips produced during the manufacturing process to distinguish between good and defective products. Wafer testing involves checking the electrical operation of integrated circuits formed on the wafer, sorting out good and defective units, and passing the good ones on to the next packaging process. Package testing is the final step, where the electrical operation of the finished semiconductor chips is tested before delivery.

However, as the production of high-specification semiconductors has increased recently, test houses are now required to identify which specific process is responsible when a problem occurs, demanding greater expertise.

Teradyne (TER, NASDAQ), a U.S. semiconductor test equipment company that reported annual sales of $2.8 billion last year, stated, "As technology advances, testing requirements are also evolving. Today's AI devices can contain billions of transistors. As process nodes continue to shrink, even 99.5% ATE (Automated Test Equipment) fault coverage leaves a large number of transistors untested. SLT (System Level Test) finds defects in the remaining 0.5% of untested transistors."

Accordingly, IC manufacturers are now requiring system level testing as an essential step to improve product quality, supplementing the structural and functional tests performed during ATE wafer and package testing.

An ITEC representative stated, "The turnaround in the memory market has been delayed, and as clients' inventory normalization and resumption of purchases have been postponed, related materials, parts, and equipment companies have seen their performance deteriorate. Despite this, ITEC has managed to perform well. With the increasing proportion of automotive semiconductors and startup AI semiconductor companies among ITEC's clients, our customer base has become more diversified, making us less affected by the traditional memory and mobile market conditions. In particular, ITEC has been involved with DeepX, an AI semiconductor specialist, in the joint production and product verification/testing program for their first AI semiconductor, the DX-M1, from the multi-project wafer (MPW) stage. We are currently conducting system level testing (SLT) to verify the final product's performance. Once mass production begins, we expect ITEC's sales to increase explosively, along with improved profit margins."

Hana Securities commented on ITEC, stating, "As of last year, ITEC had secured more than 176 clients, and is responding to overseas companies not only through its domestic operations but also via sales offices in the United States, Taiwan, and Japan. Previously, ITEC's sales were concentrated in legacy products and mobile, but its portfolio is now diversifying into AI and autonomous driving semiconductor testing." The firm added, "As testing requirements for AI and autonomous driving semiconductors become more demanding in terms of specifications and reliability, test times are increasing, leading to higher unit sales prices. Furthermore, the number of semiconductors installed in autonomous vehicles is expected to be more than 10 times greater than in conventional vehicles, resulting in a significant increase in volume."

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