Navigating The Used Equipment Market

For years, the used semiconductor equipment market has been an important but obscure part of the IC manufacturing supply chain. In fact, nearly all chipmakers have bought used tools over the years. Buying used equipment is a quick and relatively inexpensive way to fill a particular need in both 200mm and 300mm fabs.

But after years of flying under the radar, the used IC equipment market is heating up. Today, in fact, demand for 200mm used gear is robust. There are even shortages of certain and critical used gear in the marketplace.

The demand for used tools is being driven by device makers in various and emerging 200mm markets. “Chip capacity is clearly transitioning to 300mm wafers, but 200mm is not disappearing anytime soon,” said Elie Rahme, senior product marketing manager for Applied Global Services at Applied Materials. “Fabs running 200mm wafers will be profitable for years and will continue to be used to fabricate specialty memories, image sensors, display drivers, microcontrollers, analog products and MEMS.”

But as before, buying used fab tools is a challenging process. Today, there are more than 100 entities selling used tools. And chipmakers can still buy used gear from the following avenues—the fab tool maker itself; a used equipment company; a broker; and through online sites such as eBay. Some chipmakers, including Intel and TI, also sell used equipment on the open market.

The used equipment market, however, is changing, which presents more challenges for fab tool buyers. There is consolidation in the supplier base. And some used equipment vendors are even developing their own branded tools.

On the product front, meanwhile, there are also some challenges. There are a number of horror stories in the field, in which a chipmaker will unknowingly buy a used tool that doesn’t work or is missing parts. In addition, the software and controllers for some critical legacy tools are fast becoming obsolete.

And it’s becoming more difficult to find select used gear in the market, such as low-cost metrology tools and certain types of ion implanters, said Brent Wilson, senior vice president and general manager of global supply chain operations at On Semiconductor, a chipmaker that buys used gear for its 150mm and 200mm fabs. “Surprisingly, in a lot of our used equipment needs, wet hoods are the number one constraint in the market,” Wilson said at the recent Semicon West trade show. “In addition, the workforce of skilled engineers and technicians for legacy tools is diminishing. We don’t see a pipeline of new engineers coming into this space.”

So, the big questions are clear. How are the used equipment providers responding to the challenges? And what are some of the guidelines when buying used gear? Simply put, it’s a “buyer beware” market.

In the shadows
The used equipment market is difficult to track. Used tools are bought and sold on a daily basis, although the transactions are conducted behind the scenes. By some estimates, the used tool business is roughly 10% of the overall wafer fab equipment (WFE) market, according to Abdi Hariri, vice president of the Customer Support Business Group at Lam Research.

In total, the WFE market is expected to reach about $30 billion in 2014. So, used equipment is roughly a $3 billion business, Hariri said. “This is an important business for us,” he said. “It’s also a complex market.”

The used equipment market gained traction more than a decade ago, when many chipmakers migrated from 200mm to 300mm fabs, causing an excess of used 200mm tools to hit the open market. “And as equipment companies went out of business or were acquired over the years, there was no longer support for certain types of tools,” said Joanne Itow, an analyst with Semico Research. “But the tools were still out there and were productive.”

To deal with the flood of legacy gear in the market, a plethora of used equipment companies and brokers emerged over time. But over the years, the used equipment market has undergone a major transformation. “The good companies continue to survive. The ones that do not provide good service are dying off. In fact, there are fewer brokers today than before,” Itow said. “The market has also transitioned into a more sophisticated business. As more companies have demanded a more responsive used equipment infrastructure, the service level has gone up.”

Still, that doesn’t make it any easier to source used gear. Today, Semico lists 105 companies that sell used equipment. Of those, there are about 30 companies that are relatively larger and well-known. The rest are smaller players.

So which company offers the best used gear? It’s not a simple answer. “Different customers require different services. There is still a wide variety of pricing out there. Some won’t buy a tool unless it is ready to be installed. Some will buy a tool and then will do a lot of the work themselves, because their process requires some customized tweaking,” Itow added.

Avoiding a nightmare
Buyers of used gear must select the right partner and for good reason. A buyer wants to avoid this common and nightmarish scenario: “I was recently in a facility in Asia where they just purchased some equipment,” said Tim Hayden, president and chief executive of Rite Track, a large used equipment company. “They asked us to install it. We looked at it and it was full of rust. It had been sitting in an old warehouse for three years. And the buyer paid tens of thousands of dollars for a tool that was not even worth spare parts.”

To avoid this and other problems, Hayden suggests that buyers should follow some simple rules: 1) Do your homework; 2) Work with suppliers that can provide long-term support; and 3) Watch out for vendors with fancy Web sites.

In addition, buyers must become more familiar with the used equipment landscape. One of the options is to go directly through a fab equipment vendor or OEM, many of which have divisions that sell their own, branded refurbished tools. Generally, OEMs charge a higher price for a legacy tool, as compared to a third-party reseller.

“The value proposition of (buying used tools) from an OEM is all about risk management,” said Lam’s Hariri. “For example, we provide a whole suite of things, including the auditing and decontamination of a tool. We guarantee the availability of the tool. We also provide the updated software. This comes with a software license that allows the customer to operate the tool.”

Besides selling used gear in the market, many fab tool vendors must also make significant investments on another front—they must also provide service and support for their installed bases. “In a fab, a leading-edge tool lifecycle might be 18 to 24 months,” Hariri said. “Once it goes into a maturity stage, customers will continue to use these tools. On average, a lot of fabs run these tools for more than 15 years. Customers will need ongoing support in terms of spare parts, and to make the tool more productive.”

For example, in the ion implanter market alone, Applied Materials has an installed base of more than 3,600 tools in the field today. Over 1,000 of those systems are classified as legacy tools. “Obsolescence is a growing problem,” said Applied’s Rahme. “The control systems for many of these tools are more than 20 years old and need to be addressed.”

To deal with the issues, Applied Materials has established refurbishment centers in four regions for its ion implanter unit. In addition, the company must integrate its latest hardware and software for select legacy tools. In one example, Applied has upgraded its E-Series line of legacy implanters from an outdated operating system to Windows 7. The control computer has also been upgraded from a 1-GHz to a 3.8-GHz system.

Going with used equipment
Clearly, it doesn’t make sense for equipment vendors to make, sell and support their entire fleet of legacy tools due to cost issues. In some cases, an equipment vendor may put an ancient tool out to pasture. And in select cases, a fab toolmaker may even sell a legacy product line to a used equipment vendor.

In one example of this practice, Applied Materials recently entered into an agreement with OEM Group, a used equipment vendor. Under the plan, OEM Group will manufacture, refurbish and sell certain legacy products from Applied’s Semitool unit, which makes electroplating tools.

In fact, OEM Group and a handful of others are moving beyond the traditional business model. In the past, used equipment companies simply bought and sold legacy tools. Now, to differentiate themselves in the market, a few vendors are selling legacy tools, or even developing new systems, under their own brand names.

For example, ClassOne Equipment, a supplier of used tools, recently formed a unit called ClassOne Technology, which is developing new and select equipment under its own brand name. Recently, ClassOne Technology rolled out its own and new electroplating tool for use in trailing-edge applications.

“We want to give customers options,” said Kevin Witt, vice president of technology at ClassOne. “This is not a cutting-edge tool, as compared to the Lam or Applied system. But it’s good enough for the 90nm node and above. It’s for people that want to run small wafers at a price point of about $1 million.”

Many used equipment firms are not developing their own branded tools. In fact, not all used equipment companies are created equal. Each company may have its own niche. Some are selling used gear based on only one factor—low prices.

So when does it make sense to do business with a used equipment firm versus an OEM? If a chipmaker requires a tool with special IP, go with an OEM. It also makes sense to go with an OEM if a chipmaker wants a plethora of legacy tools.

But if a chipmaker needs a few tools, or a customized system, then check with a used equipment firm. “Does an OEM want to re-configure a 200mm tool and develop a customized machine to run 3-inch wafers? They would probably not want to put their engineering resources in that type of business,” Rite Track’s Hayden said. “People would choose a third party like us, because we would customize the product and provide value-added services. These are usually unique and customized tools to handle a certain application.”

Other sources
Another option is to buy used gear through a broker. “For the most part, brokers will sell the system at the site as is. Sometimes, they know about the configuration of the system. They may or may not know the history of the system,” Lam’s Hariri said.

In addition, some chipmakers also sell used gear. For example, Intel Resale Corp., a unit of Intel, sells used tools “as is” to end users or indirectly through refurbishers at “competitive prices,” according to Intel.

And not to be outdone, there is eBay, possibly the world’s largest seller of used equipment and spare parts. “Literally, thousands of spare parts are sold on eBay,” Rite Track’s Hayden said. “This is a buyer beware market. Beware of the knockoffs. They are cheap, but they are cheap for a reason. There are a large percentage of parts that are sold on the Internet today that don’t work or don’t fit.”