Making Sense of the Used Equipment Marketplace

Peter Singer, Editor-in-Chief -- Semiconductor International, 7/1/2000

		At a Glance
	Can a small new consortium change the way used equipment is bought and sold?

One byproduct of the semiconductor industry's rapid growth and practice of moving to a new technology node every two to three years is a growing stockpile of used equipment. How that equipment is bought and sold has always involved a complex web of buyers, sellers, brokers, leasers, OEMs, auction houses and remanufacturers/ refurbishers. Now, a host of new Internet-based enterprises have sprung up, aimed at "bringing buyers and sellers together" in the used equipment market. Some say these "B2Bs" are using the Internet as a tool to make the buying process more efficient; others say the "good" equipment is sold long before it would ever appear on a Web site, and the only efficient thing about buying on the Web is how quickly you can get into trouble.

To help make sense of these issues, we've enlisted the help of the president of a new consortium called SEC/N (pronounced "second") that hopes to bring a higher level of professionalism to the used equipment marketplace. The president of SEC/N, Gary Alexander, is a 25-year veteran of Motorola, where he had responsibility for the company's used equipment sourcing for seven years and was a member of SEMATECH's Surplus Equipment Council. A contributor to this feature, Alexander also will be writing a monthly column on the used equipment market, beginning in our September issue. (Also see his Industry Observation in this month's issue, pg. 418).

SEC/N, which stands for Surplus Equipment Consortium Network, grew from seven to 28 members in 1999 and is up to 34 so far this year (at press time). Alexander believes the number of members will top 75 by the end of the year. Members include several large companies, such as Applied Materials, Comdisco, Intel and Texas Instruments, as well as a variety of smaller companies. The members include OEMs, brokers, buyers, sellers; any company involved in the used equipment market is eligible. (See SEC/N's Web site at www.secninc.com for more details on members and membership requirements.)

How big is the market?

Used equipment becomes available for a variety of reasons. Most commonly, it is because newer, higher-technology equipment has been introduced. What will happen to 200 mm aluminum sputtering equipment as the world moves to 300 mm wafers with copper interconnects, for example? Most likely it will be sold as used equipment! In other cases, equipment may be moved within one company, from a leading-edge line or facility to one that is cranking out less sophisticated, yet still profitable, chips. Entire lines may be shut down, and production of that line's product moved to a foundry; the sale of a portion of the equipment is often included in such agreements. Manufacturers sometimes go out of business, or the business is sold to another manufacturer that changes out the equipment. And, probably of most concern, equipment becomes available due to an incident of some sort, such as the recent earthquake in Taiwan.

The size of the used equipment market in terms of dollars is difficult to pinpoint. A best-guess estimate is somewhere around $3B, but Alexander points out that it's difficult to accurately define the total marketplace and all the players worldwide. "It's very difficult to acquire numbers," he said. "Many of those companies perceive that as classified information. Some of them do so well in used equipment, they don't want it out. Some are so embarassed about the fact they don't have a clue, they don't want to comment. But for one reason or another, many companies will just not contribute that type of information."

Another problem with calculating the size of the used equipment market is where to draw the line. "Let's say one semiconductor manufacturer decides to buy an 'as-is' piece of equipment for $400,000," explained Alexander. "They in turn send that out to be remanufactured for another $150,000. They way things work today, it may require another $50,000-$75,000 worth of software licensing. The question is does it get counted in the market place as $400,000, $550,000, $600,000 or some other combination or permutation?"

SEC/N, possibly in conjunction with SEMATECH and SEMI, will be working to develop an agreed-to formula that could be used worldwide for calculating market numbers, as well as a method for collecting that information without giving away classified information.

Degrees of sophistication

What happens to used equipment once its owner has decided to sell it — how it is sold and acquired (or simply junked) — largely depends on the sophistication of the seller and, of course, the type of equipment. In a best-case scenario, the equipment would still be in operation. "A piece of equipment is roughly worth twice as much if you can sell it when it's installed and operational. If the customer can watch it in operation, see it's in good mechanical condition, and can get it decomissioned, transferred to his site and set up, it's almost worth 2X," noted Alexander. Less sophisticated companies are more reactionary. "If you are a reactionary company, you've already given away a lot of bucks because the first time you are aware that you have equipment available to sell is when it hits your dock, maybe already in a crate," said Alexander.

If the equipment is not in operation, it could be difficult to accurately assess its condition. To help in that regard, SEC/N has developed an Equipment Condition Index (Table) that sorts used equipment into 21 categories. The categories were developed in part by measuring the worth of equipment (i.e., used equipment would be worth more if it went to the next level). "It goes from everything from junk in a box to a brand-new piece of equipment that's been sold once but still in the original carton, which is used by definition," said Alexander.

As with buying any piece of complex used machinery — a used car being a good example — it's wise to either buy it from a reputable dealer or have it evaluated thoroughly by an expert before it's purchased. Consider, for example, what can happen to equipment that has been damaged, such as in the recent Taiwan earthquake. Even if the equipment has been evaluated by the OEM and deemed unrepairable, and written off by the insurance company, companies still may see a selling opportunity. "Some of this equipment did surface recently, where OEMs had been asked to rework equipment, said No, we aren't going to rework that because it was too damaged;' and, lo and behold, some company winds up buying it several months later and comes back to the OEM with the same serial number asking them if they won't take this piece of equipment and rework it," Alexander said.

Although the Internet soon could change traditional selling and buying practices, Alexander said much equipment is still sold the traditional way: through a network of contacts. "This is why the SEMATECH companies thought it was important to form the Surplus Equipment Council back in the 90s," explained Alexander. "If we could identify the equipment that was to become available from fabs that took care of it, and get it before it was pulled out of the line, that was very strategic."

The Internet factor

SEC/N's Web site also includes a no-charge capability for anyone to search for used equipment (search requests are sent out daily to member companies). While B2B companies are not eligible for traditional memberships in SEC/N, Alexander is working with both the e-commerce sites and their customers to help find a way to address the e-commerce standards, ethics and educational issues that exist. In addition, the day is near when equipment from member companies listed on Web sites will carry the SEC/N logo as a seal of approval.

Semiconductor International has toured these sites offering used equipment marketplaces and put together reviews to help you figure out what might best meet your needs. If you peruse these sites, you'll find that some have only a few pieces of equipment listed, while others have hundreds. Some offer only basic listings, while others offer additional services, including such options as financing, insurance, rigging and shipping. Most offer equipment "as is, where is" but others have a team of specialists who have evaluated the equipment's condition. It's a wild and woolly world, folks... good luck and good hunting. •