SEMI Austin Forum: Trust Needed to Foster Innovation

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.