Trickle Down Equipment Economics

Is the long downturn finally at an end for used equipment vendors? And what does that mean for everyone else?

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By Jeff Chappell
By now, with the rise of China as a center of manufacturing, everyone in the chip industry has no doubt heard of the supposed Chinese curse, “May you live in interesting times.” It’s practically cliché. The thing is, the next two industry cycles may indeed prove interesting for the used equipment market.

At the moment, everyone is tired of interesting times, and those in the used equipment sector are no different. The current industry downturn has been one of the longest ones in recent memory for them.

It’s difficult to express how bad things have been in terms of numbers for the used chip equipment market. The sector is fragmented, and much of the buying and selling is between brokers—often for specific customers. But one thing is clear: Times have been tough.

“This has been the longest sustained downturn in the used equipment market in the 16 years that I’ve been in it,” said Julian Gates, managing director for AG Semiconductor Services. AG is one of the largest, if not the largest, suppliers of used semiconductor capital equipment and services in the industry.

“We’ve seen worse, but this one has been sustained for a long time and has had a real negative impact on everyone in the used equipment market,” Gates said. It is a sentiment voiced by others in the market, whether they’re based in the United States, China or Europe.

Even as some first-tier chipmakers are moving to add capacity, things are quiet among second-tier customers. “I haven’t heard of a second-tier scanner that was sold in the last three months,” remarked one sales executive from used equipment supplier SDI Fabsurplus LLC.

But there are signs of the proverbial light at the end of the tunnel. Just as there has been talk of capacity expansion in the chip industry, consequently there are signs the market for used equipment may be picking up. One of the few notable bright spots this spring for purveyors of refurbished semiconductor capital equipment and services has been in the packaging front, where 3D packaging and related newly-developing technologies are proving drivers in the chip industry as a whole. In terms of equipment, that means a need for wet processing, plating, physical vapor deposition (PVD), photolithography and etch equipment.

This technology-driven expansion is coupled with the fact that companies in the backend are also looking to move packaging and test operations to mainland China. The market for analog and power devices also has remained strong, as has demand for memory to some extent, all driven by consumer electronic devices. And all this has helped drive what business there is of late in the used equipment sector.

But as a whole the entire market, in terms of geography, is really quiet, used equipment providers say—even China, where the only projects of any notable size currently underway are being driven by the government, as opposed to the private sector. As one Fabsurplus sales executive tersely quipped of the Chinese market, “It’s not hot.”

But recently interest on the part of customers has picked up across much of the used chip equipment market. As one Shanghai-based equipment sales executive noted with regard to China and packaging, no one is doing through-silicon vias (TSVs) just yet, but everyone there is talking about it. Whether or not all this interest translates into actual orders in the latter half of the year remains to be seen. Historically, however, increased activity in the backend, i.e. packaging, usually presages a broader rebound, and used equipment vendors are cautiously optimistic.

“We are seeing definite signs of an uptick,” said AG Semi’s Gates. “For the first time in a year and a half, people are broadcasting their intent to invest. Our hope is that it will be sustained … and not just an initial hype that we see sometimes.”

He characterized this interest as potentially large expansions in Asia, Brazil and India, where companies are looking to invest in entirely new—to them, at least—manufacturing lines. North America and Europe are still quiet, he said, but these markets usually follow as interest builds elsewhere.

At least one used equipment company that is focused on the European market is anticipating an uptick of orders in Q4, however. Some European device makers are currently planning to convert fab lines to what is, for them, next-generation technology, said Tony McKie, CEO of memsstar.

UK-based memsstar is focused on the market for deposition and etch equipment and related support services for both semiconductor and microelectromechanical systems (MEMS) applications. McKie noted the company recently has done several wafer-size conversions for customers, upgrading fab lines from four- to six-inch wafer processing and from six- to eight-inch.

In terms of a Q4 uptick there are a number of standard pureplay semiconductor companies in Europe looking to place orders at the end of the year, but there has been keen interest in the MEMS market as well, not to mention power devices. “Right now we’re seeing quite a bit of interest in power applications,” McKie said, noting that European power device makers are seeing intense competition from Asian device makers at the moment.

Will used 300mm equipment represent strategic opportunities?
If the industry is on the edge of a current up-cycle, it also may precede interesting times in the next cycle, as the market for used 300mm equipment continues to develop. The market for refurbished 300mm tools is relatively small and new, compared to the used equipment market as a whole.

It’s also been busy, of late and will likely continue to be so. But refurbished 300mm tools are the sole province of first-tier IDMs and foundries, for the time being.

It’s no secret that capacity is tight at the leading edge and near-leading edge nodes, and yet companies need to shave costs wherever they can. This means demand for used 300mm tools at top-tier device makers—core systems that can be refitted or otherwise refurbished for other applications—has remained strong even as the market for used 200mm tools has been ghostly quiet for most of this year.

A primary example of this is financially beleaguered DRAM maker ProMOS’ sale of a 300mm fab in Taiwan earlier this year. Foundry giant GlobalFoundries snatched that up. “From what I’m seeing in their forecasts, GlobalFoundries is a major player,” said a FabSurplus sales executive. The foundry expects to buy some $150 million of 300mm tools and services in 2014, for both backend and frontend expansion in 300mm fab lines.

There just have not been any second tier chipmakers, be they IDMs or foundries, making a play or even expressing much interest in used 300mm tools—yet.

But what if there were? Could a second-tier chipmaker theoretically jump into a market dominated by first-tier players by upgrading a fabline with used 300mm equipment and consequently offer a cost-effective alternative product?

“If one of those second tier companies had decided to go after, say Promos facility … their cost of equipment capital would have been lower” than that of a company investing in a brand new fab line, said Gates. “We haven’t seen it happen, but that’s not to say it couldn’t. It’s really been the first-tier customers that have taken advantage of the 300mm equipment in the used equipment market,” he said, but noted that AG Semi has actually seen some tentative interest from second-tier customers.

Certainly it is a possible scenario for a European chipmaker. Memsstar’s McKie noted that European companies are well established and comfortable with manufacturing devices using refurbished 200mm tools; they would not be averse to adding 300mm capacity with used systems. The real issue is the availability of core manufacturing systems; as with Promos’ fab sale noted above, used 300mm tools tend to get bought up very quickly in today’s market.

So this scenario is highly unlikely in the current cycle—assuming that the industry is on the edge of an upturn. But it’s a distinct possibility in the next cycle. Perhaps with the low-power needs of the end market driving things such as finFETs in the front end and TSVs in the back end, there will be an opportunity for a second-tier player to jump into a market dominated by first-tier players as the 300mm market matures and more systems become available.

There is definitely interest on the packaging side for used 300mm tools, refurbished tool brokers report. Many 300mm packaging lines that utilize advanced technology will be moving from pilot lines into production in the next cycle. Could this be a strategic yet cost effective opportunity for a second-tier company?

It is speculation, to be sure, but one thing is certain: A growing market for 300mm tools will be a boon for used equipment providers. As markets mature, original equipment makers don’t always find it cost-effective to offer service and support for used equipment. This provides an opportunity not just to broker and sell used tools, but service and support for those tools as well. In terms of the 300mm market and the related manufacturing complexity found in the accompanying technology nodes, there likely will be a strong demand for refurbished and repurposed tools and accompanying support services in the next cycle.

“The used 300mm equipment market is really now just developing,” said Gates. “We’re really going to see it come into it’s own.”