David Lammers

SEMI Austin Forum: Trust Needed to Foster Innovation
March 20, 2008

That phony veil of dispassion that people often hide behind slipped off at the SEMI Austin forum Wednesday. Tim Hayden, the CEO of Rite Track Inc. (West Chester, Ohio), started it, and then Kelly McAndrew, CEO of Applied Mechanical Corp. (Austin, Texas) added his own lively observations about what is going on in the United States and the wider chip manufacturing industry.

Hayden rose up through Cincinnati’s machine tool industry and now runs the 150-person Rite Track, which customizes remanufactured track systems for the semiconductor, thin film head, solar cell, and MEMS industries. It is a business which requires a mixture of skills, including an ability to build customized interfaces to a factory’s automation system.

It has an agreement with Tokyo Electron Ltd. to handle its refurbished track business, and also owns the track-related IP of the Silicon Valley Group (SVG).

As Hayden described it, Rite Track “re-invents machines to re-enter new markets.”

On the surface, it might appear that this would be a lucrative business, with the machines re-invented to work in fabs making MEMs, biological devices, thin film heads, and photovoltaics. However, while many of these emerging markets are growing quickly, many of the players simply don’t have the budgets to buy what they need.

“This is not a fun time to be an equipment company,” Hayden said, adding that prospects are unlikely to improve for the next couple of years.

As one member of the audience who earlier worked in the refurbished tool business years ago said during the coffee break, “when you try to sell a used tool for a few hundred thousand dollars to people in these emerging markets, their eyes go wide. They just are not used to spending money like the semiconductor manufacturers.”

Hayden’s complaint is that many customers are so cost driven that they only think about rate cards, without regard to quality or creative engineering solutions that will keep their fabs running more efficiently in the long run. Thus, many of the small supplier companies specializing in niche tooling areas are going out of business. These 10-15 person companies require well-paid workers with special skills. “The small suppliers are dwindling. And when we go out to buy a circuit board, we need somebody who can provide us with, say, only 10 of them,” he said.

He acknowledged several times that Rite Track’s customers are under tremendous cost pressures themselves, often causing Rite Track to barter, providing its engineering services and refurbished track in return for a partial cash payment while also taking back other used equipment — perhaps a stepper or another tool sitting unused in a storage area — which can be sold to an equipment broker.

Sometimes the customers hurt themselves, buying the cheapest used tools and then wasting money by running the equipment inefficiently. “Operating expenses are the hidden component of supporting legacy tools,” Hayden said.

Also, some customers in Asia try to move semiconductor-use tools into emerging markets where the tools are not well-suited. “People buy a whole fab and then find that the equipment is unable to run the process the customer is targeting. The equipment sits idle for a time and ends up back on the open market,” Hayden said.

Kelly McAndrew, the president of Applied Mechanical – a 300-person company which provides engineering services to semiconductor fabs – took up Hayden’s lament for engineering creativity.

“This industry increasingly is being run by the scoreboard, and it is killing innovation, creativity, and drive,” he said. On the plus side, he recounted examples of how innovative fab managers had saved their companies money by thinking out of the box.

Rather than do business in an adversarial atmosphere where the customer starts out being suspicious that costs are being padded by the supplier, the industry needs to value trust and openness, the qualities which foster creativity, McAndrew said. Opening the kimono a bit warily before a sold-out audience of ~130, McAndrew said his own company has turned away customers that discount engineering creativity, with the result that Applied Mechanical’s revenues declined by a few percentage points last year while profits inched up a few points.

Terry Hollingshead, the CEO of netMercury (Dallas), which provides logistics support for parts and consumables, also said his company needs customers who can look at the bigger picture, seeing the hidden costs of just buying the cheapest part on the market. Too many decisions are made on the basis of a simple rate card, he said.

What is needed is a balance between what Hollingshead called “the engineering optimum” versus rate-card-driven decisions.

“Too many companies engage in uncoordinated parallel activities,” where individual fab managers refuse to cooperate with their counterparts at other locations," he said.

Posted by David Lammers on March 20, 2008 | Comments (1)