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Taking Control Of Equipment Assets

When is the best time to institute ‘equipment lifecycle management’ and enlist the aid of an outside asset management organisation? “Right now,” says Trey Brown, general manager, GE Global Electronics Solutions
The semiconductor industry is coming out of one of the severest downturns in history. While Europe, as well as every region in the world experienced sharp declines, industry analysts predict an increase in chip manufacturing and sales throughout Europe in 2004 and beyond, fuelled by wireless technology and automotive and automotive electronics. While many leading European manufacturers are moving towards joint manufacturing ventures with companies in Asia, there still exists a strong need from chipmakers in Europe to extract the utmost value from the technology base they currently have - and proactively refresh their technologies to stay competitive in this fast-moving industry.



Strategic approach



There is a whole hierarchy of needs in the semiconductor/manufacturing world. For leading-edge semiconductor manufacturers, keeping pace with Moore's Law is imperative. That requires implementing the most aggressive manufacturing technologies as soon as they emerge — such as 300mm wafers, nanometre capabilities, copper processes and low-k materials. However, manufacturing equipment can usually deliver performance for seven to ten years — long after the leading-edge manufacturer has moved on to the next technology. Due to shortened product cycles and longer equipment life, the intrinsic value of displaced equipment is much higher than in the past. ‘Unneeded' equipment still retains a very large percentage of its original value on the open market. For example, it is not unusual for steppers to still be worth millions of dollars after their initial application.



Many manufacturers don't live on the bleeding-edge of technology - so they form a natural market for the trailing-edge equipment no longer needed by the leading manufacturers. However, remarketing equipment between the two groups of semiconductor manufacturers is not as simple as it first may seem. The acquisition of used equipment still represents a very large capital expenditure, sometimes hindering the sale at the right price because of the financial challenges facing the potential buyers and the technical risks associated with buying second-hand equipment.



The actual issue goes much deeper than just matching buyers and sellers. According to industry data, at any one time as much as 20% of all installed manufacturing equipment is under-used, idle or misplaced. To close these ‘capability gaps', what needs to be effectively addressed is the complete lifecycle for semiconductor manufacturing equipment. As a result of this phenomenon, there is a growing trend in the industry towards equipment lifecycle management, where semiconductor manufacturers are adopting a much broader view of equipment requirements.



The goal of equipment lifecycle management is to develop a ‘big picture' approach for resource management based on current capabilities and technology and business roadmaps that plan for the next several years covering the entire span of equipment life. To gain more control of valuable capital equipment assets, semiconductor manufacturing companies should develop a manufacturing roadmap for optimising production, while concurrently looking for bottlenecks and flagging equipment that has become redundant. Equipment lifecycle management also helps to identify equipment that, at a given time, will achieve maximum value on the secondary market.










Equipment
lifecycle management



Comprehensive equipment lifecycle management recognises the continuous dynamic tension between rapidly changing technologies, shorter product cycles, longer lasting equipment values and the need to carefully manage financial resources. This makes the optimal semiconductor equipment strategy a continuously moving target. Companies must devise a unified equipment lifecycle management plan that encompasses acquisition to optimisation through disposition, to stay on top of their constantly changing capital equipment needs.



Prudent yet flexible



The acquisition of manufacturing equipment is more than just selecting the right system for the job. Each new piece of equipment requires a resolution between deploying the most effective and current- technologies laying the groundwork for meeting future requirements. In essence, the evaluation and selection of new equipment provides periodic openings for breaking free of legacy constraints and injecting fresh innovations and alternatives.



Acquisition lays the all-important foundation for a healthy equipment lifecycle that will include optimisation and eventual equipment remarketing, known as disposition. With the pace of semiconductor technologies continuing to accelerate, companies have to constantly plan for the disposition and replacement of each piece of equipment, even as they are in the process of acquiring it. That is why acquisition requires a thorough understanding of forward-looking trends, along with a solid knowledge of trailing technology curves, current market values and the ability to follow through in meeting customer expectations.



Where the evaluation and selection process traditionally takes 6-18 months, it is vital that the evaluation process be both comprehensive and efficiently completed. In too many cases, decision-makers choose too soon, potentially missing out on beneficial technology alternatives - or they delay completion of the selection cycle, and risk falling behind competitors.



Once a piece of equipment is selected for acquisition, an obstacle that often surfaces is financing. If most of a manufacturer's cash is tied up in capital equipment, it restricts a company's options. Most manufacturers in the semiconductor industry have more than 70% of their cash capital sunk into their installed equipment base. With new technologies emerging every year, and product lifecycles of devices shortening, manufacturers need to find ways to free up their cash flow to invest in advanced technologies to stay competitive.



In the past several years, comprehensive financing and leasing alternatives have emerged to specifically address the needs of the semiconductor industry. Leasing is an especially powerful tool, offering manufacturers significant benefits in managing balance sheets and cash reserves. It can provide a hedge against equipment obsolescence and gives manufacturers the flexibility to control the turnover and cost of their equipment acquisitions.



Leasing also enables semiconductor manufacturers to better respond to market upswings by quickly acquiring equipment when and where it's needed. Should demand shift, investments in equipment can be adjusted accordingly, helping a manufacturer maintain their competitive edge. Typically the lease terms are flexible and can average from 36 to 48 months with the option of renewing the leases before the terms expire.



Continual optimization


After acquiring a piece of equipment — whether through leasing or purchasing — optimisation is the next phase in equipment lifecycle management. Optimisation means more than just having a piece of equipment working at peak efficiency. Often, companies concentrate only on efficiency and uptime, but fail to assess if the piece of equipment is the right match for the task at hand. Worse yet, they may be completely unaware that the same piece of equipment could be better used to accomplish higher-priority production goals somewhere else.



Optimisation focuses on getting the maximum performance out of the best semiconductor equipment for a particular task. Today's semiconductor companies need to use every tool available to continuously monitor the whole range of relevant data on equipment utilisation and effectiveness, while constantly re-evaluating assumptions about the appropriateness of their existing technology choices. Ultimately, the goal is to ensure that the proper tools are consistently available when and where they are needed to provide an optimal balance of throughput, quality and return on investment.



At the highest level, semiconductor manufacturers need to be continually classifying every asset based on the equipment's long-term usefulness. Equipment should be classified as retiring, migrating or having extended use. Of course, these classifications need to be updated on a regular basis as manufacturing needs to change and adapt to shifting technology and market needs.



Effective disposition



Remarketing equipment is the last piece of equipment lifecycle management. Effective equipment management has to be viewed as a continuous unified process that includes continually planning for the disposition and replacement of each piece of equipment.



The desired objective is to sell a piece of used equipment at its true market value, while balancing a reasonable amount of effort expended against the potential benefits for maximising the financial return. A company could potentially move their used equipment with less effort by radically dropping the price below market value and/or rely on speculative brokers whose whole business model is to buy low and resell at a profit. The penalty with this practice however is lost value.



From the buyer's point of view, purchasing used equipment is just as big a decision as evaluating a new system. In fact, it might be more complex. Besides needing to understand the system's capabilities and fitness for the application, buyers need to thoroughly evaluate each system's current condition such as engineering revision levels, maintenance history and included options/tooling. Other key factors include the buyer's ability to obtain a warranty, ongoing support, software licenses, maintenance and spare parts. Financing the purchase is equally important for resellers, as this can sometimes mean the inability to make a deal at the right price because of the financial challenges facing prospective buyers.



Remarketing also requires a balanced blend of global marketing reach and localised in-depth knowledge of specific market requirements. Remarketing is truly an international business with buyers for used equipment sometimes halfway around the world from the sellers. If the selling company only focuses its ad hoc sales efforts on its own region or looks to local equipment brokers, the chances are that they will miss out on lucrative opportunities in geographically remote markets. On the other hand, even if the sellers are able to connect with potential customers in other regions, unfamiliar inter-country issues such as monetary exchanges, tariffs, local taxes and safety regulations can seem to make such transactions more complex, costly and time consuming than they are worth.



Third-party expertise



Although more semiconductor manufacturers recognise the need to adopt equipment lifecycle management, they hesitate in diverting precious resources and attention away from their primary business of creating semiconductor products. That is why a growing number of companies are turning to outside experts to help with equipment lifecycle management. These third-party companies specialise in helping mitigate the risk of unforeseeable market conditions when purchasing equipment for the dynamic semiconductor market. GE Global Electronic Solutions, for example, has developed a comprehensive set of services and capabilities to help companies implement and manage the complete equipment lifecycle on a global basis.



Transferring the burden of purchasing and managing capital equipment to asset management companies is an attractive alternative for optimising capital equipment resources. For example, during acquisition, specialists in third-party companies are available to provide technical expertise and knowledge to assist with evaluating current and future requirements and to match them with available and emerging technologies. These management experts carefully examine each customer's unique technology and capacity needs, taking into consideration the different technical and economic factors to help companies make the right decision for their needs in a timely manner.



By bringing a thorough knowledge of technologies and market factors to the process, equipment lifecycle management companies are also able to leverage strong relationships to help companies evaluate both new and used equipment alternatives, ultimately expanding their options for maximising their capital investments. Third parties must combine an in-depth understanding of fabrication, testing and packaging processes, technology trends and a full range of leasing, purchasing, sales/leaseback and equipment evaluation/locator services. To facilitate financing, some third-party companies even provide customised financing to help customers in a variety of ways — from optimising equipment use and reducing financial risk to extending capital for other vital equipment and operation investments. Financing new or used equipment or refinancing current debt can free up cash for working capital and improved cash flow.



Once the equipment is acquired and installed, manufacturers then rely on asset management companies to help them optimise their equipment utilisation. Third-party experts offer on-going audits, analysis and review services to ensure continued appropriateness of installed equipment and to evaluate opportunities for upgrade or replacement. They also provide global equipment knowledge, secondary market knowledge and the unique ability to bridge the gap between financial and technological excellence to help semiconductor manufacturers keep on top of shifting production requirements and an ever-shifting pool of equipment assets.



External strategic relationships are especially powerful during equipment disposition efforts. A qualified intermediary can provide comprehensive strategic remarketing services and yield competitive returns on the equipment, as well as offer a solid set of assurances to prospective buyers. When vetting a possible intermediary, a manufacturer should look for third-party assistance that offers a solid core of in-house technical resources along with an extensive network of OEM and third-party service relationships that facilitate remarketing.



Other important remarketing capabilities include:

data collection and technical write-ups

equipment pricing and valuations

market and product expertise

database of key semiconductor and electronic companies

efficient remarketing system for identifying buyers and sellers

e-commerce

global sales force.



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