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Psst! Looking for a good deal on a secondhand wet bench?

Forget used cars if you're looking for a good example of a business with a bad reputation. The used semiconductor equipment business has the tire-kicker brigade beaten by a mile, insists Gary Alexander.

"The used car business gets quite a rap, but there they only stick you for a couple hundred dollars. But in this business they can stick you for a million," he jokes.

Alexander is president of Surplus Equipment Consortium/Network. Abbreviated SEC/N and pronounced "second," the 16-member organization was founded in late 1998 to serve as an international clearinghouse for information and help in finding reputable used equipment and services. Its lofty objective is to put the stamp of quality, service, integrity, and professionalism on an industry that, if critics are to be believed, is extremely ethically challenged.

If there's any doubt about the need for the organization, the former capital equipment sourcing manager for Motorola's East Valley Phoenix region can dispel it with a few horror stories. Consider the time he was asked for some help in buying a second-hand metrology tool. The equipment seller was in Florida, a rueful Alexander recalls. "This fab happened to be in the Phoenix area and was negotiating with a broker to buy this equipment. Over a period of a couple of weeks I discovered there were actually two other brokers negotiating for that piece of equipment for other customers."

During the bidding process the price rose exponentially "just because these negotiators were trying to beat the other guys out." He quickly discovered that the other bidders were two fabs owned by the same chipmaker.

The upshot? "We had successfully driven the price up $40,000 within the same company," Alexander says with barely contained humor. The "unethical brokers" were content, he remembers, "because it was the chipmaker bidding against itself, so who cared?"

Eventually, "the Phoenix fab ended up acquiring the piece of equipment. When the other folks backed off we were able to get the price dropped down somewhat. At the time, the good news was that I was then in a position to go back to the manufacturing and finance folks and ask them which of these three fabs needs it more, instead of bidding it up amongst ourselves." The lesson the chipmaker learned was that "somebody can set priorities."

The consortium president also cites the cases of Internet equipment sites checked out by SEC/N that haven't updated their equipment lists since 1996 or 1997. Furthermore, there are so many home pages for surplus equipment that now "there are Web sites that list Web sites," Alexander laments, adding, "the Web sites are a quagmire out there."

Asked to supply an anecdote illustrating a typical bad experience involving the purchase of used equipment, Bill Scaife of SEC/N member company Group 5 takes issue with the question's phrasing. "The word 'anecdote' usually implies humor," replies Scaife, the president and founder of the surplus equipment brokerage. "There is very little humor when a business receives a 'fully refurbished' system that has no power supplies, when software license transfer costs are not fully disclosed to a buyer until after a sale—and exceed the price of the system—or when a broker absconds with a payment.

"Our industry is largely a 'prepay-before-shipment' industry," he continues. "It is an environment where half-truths, strong-arm tactics, and outright felonies are too frequent. SEC/N is about full disclosure by dealers and OEMs, standardized language and contracts, and individual integrity."

Bringing some order to this World Wild West is one of the reasons Alexander allowed colleagues to convince him at a late-night Semicon West bull session three years ago to take an early retirement in order to ride herd on the endeavor. With Motorola's blessing and the backing of five founding member companies Alexander says he was able "to use my severance package to basically fund my efforts in this thing for the first year."

In addition to Group 5, the founding members are Applied Materials, Applied Mechanical Services, Comdisco, and Versatile Technologies. In order to launch the independent consortium each invested "significantly more" than the current membership fee, which is $3500, Alexander notes. The cochairmen of Sematech's Surplus Equipment Council and representatives from SEC/N's founding member firms are on the advisory board of the consortium.

"The objective was to basically put a third-party organization together to do two things," Alexander explains. "One is to promote the [surplus] semiconductor equipment industry from a professionalism and information standpoint, and the other is to promote companies that are willing to step forward and demonstrate that they are ethical and value the business."

The involvement of OEMs such as Applied Materials is important for SEC/N, since it indicates a recognition that a legitimate market for surplus equipment exists, Alexander says. Before SEC/N was formed, he was a member of Sematech's Surplus Equipment Council. Meeting approximately twice a year, the council invited OEMs, remanufacturing brokers, and people from various aspects of the equipment industry to attend the gatherings.

"We asked them three questions," Alexander says. "First, where do you think the industry is going in two to five years?—because there are never any good metrics on the used equipment market. Second, what types of strategies [should we look at] to make sure the key players are involved? With a lot of these OEMs, we'd call them, and it's the program of the month when it comes to used equipment. And third, what should this council be involved in and what should we stay out of? In other words, where can we make a difference?"

The Sematech council discovered several key things that have been incorporated into SEC/N's charter. "One is the ability to network and communicate under something other than adversarial conditions. And there was nothing out there. That ultimately evolved to help reconcile differences between folks who eventually would have gone on to litigation.

"Another thing was realistic metrics," Alexander adds. "What's happening in the industry? How does one identify companies that are ethical and willing to stand up for the right things?"

It quickly became obvious that OEMs "were struggling with strategies" on at least four levels. At first they denied that a market for surplus equipment actually exists. In the second phase, they told themselves they'd capture a portion of this negligible market "through trade-ins, and there won't be a problem. But most of all OEMs are in a third phase, what we call 'the program of the month.' Or the program of the year may be that they set up their own P&L [for this market]. The bottom line is that they just don't look at this, because their primary objective in life is to make new equipment. It's just a pain in the posterior. But Applied Materials has looked at the situation and said: 'This is a legitimate business. We need to address it as a major thrust area.'"

It's not surprising that OEMs have neglected the used tool market, points out Alexander. For decision makers at these companies "used equipment is not something they wake up thinking about. Chip manufacturers are the same way. The senior people deciding what is being bought and sold are people associated with new fabs."

Asian foundries and other chipmakers in the Pacific Rim are emerging as key drivers for this market, Alexander notes. Often, he says, they "don't have a clue of how the system works but are in desperate need of information. They have an opportunity to contact us through our clearinghouse operations. We point them to the companies that might help them. There's no commission or anything. It just goes a long way to helping these guys."

Tim Self agrees that market conditions and emerging high-tech economies in countries such as China are driving the industry. "Surplus equipment is becoming a pretty hot commodity these days," says Self, president of Applied Mechanical, a SEC/N member which decommissions, decontaminates, and installs used chipmaking gear.

"I think OEMs realize they've got to participate or risk losing market share." He believes the used tool industry is emerging from a "mom-and-pop" phase. The characterization isn't intended to be a criticism, he stresses, merely a description of the retail, scattershot nature of the industry up to this point. "They're coming out of a mom-and-pop environment into a professional OEM environment. I've got to tell you, it's going to take a whole lot of work to get this surplus equipment industry to the level it needs to be."

Creating standards is one important step in that process, Self insists. While the participation of the likes of Intel and TI in SEC/N helps immensely, "it's going to take a concerted effort on the part of everybody who participates in the industry. The bottom line is we need to get standards established that are no different from what Sematech or SEMI or anybody else has done."

The industry should first focus on developing a safety standard, Self asserts. "The protocols or standards that have to do with surplus equipment are very important if for no other reason than a pure safety standpoint." He points out that surplus tools are typically sold "'as is, where is.' That means I'm selling this to you, and whether it works or doesn't work is not my problem once you pay me for it. The previous owner of the equipment does have some liability. [The owner] maintains permits for all hazardous process materials associated with the facility."

Decontaminating the equipment thus takes on major importance, notes Self. "If that tool leaves their facility and somebody gets hurt down the road, they're still liable. There are owner liability issues as well. These are all safety issues, and at the same time there are some commercial issues."

He explains further: "Liability goes a long way. In other words, we can say, 'Well, ABC Corp. sold the equipment; the chemicals were on their tool. But if XYZ Corp. bought the tool, they own title to it, so they're going to be liable as well."

What Self calls "ship prep," or shipping preparation, also has its pitfalls. "One of them is vendor warranties or service agreements and the like if the equipment is not prepped right. If process kits are not removed and ship kits not installed properly, the warranties and service agreements may not be honored by the vendor.

"The other aspect is just the shipping condition itself. What we've found is because equipment is surplus and people have bought it 'as is,' a significant amount of the equipment could be worth $3 million, but it's still treated as a $300,000 piece of equipment. When it gets where it's going, it's kind of in a shambles, and it looks like a piece of surplus equipment. Proper disassembly makes it much easier to reassemble and install."

Two of the most difficult pieces of gear to move are steppers and implanters "because of their size and complexity and the level of contamination," Self says. But even the less expensive wet benches can present problems inasmuch as the tools make use of acids and solvents.

"We have a very keen interest in the establishment of ethics and protocols, because it has everything in the world to do with our efforts," Self points out. For example, the U.S. Department of Transportation requires a certain level of decontamination "before you take a piece of equipment and put it on a truck. That level of decontamination still is not safe." Even if the equipment is wiped down and the process chambers are cleaned to DOT's satisfaction before placing the tool on the truck, "if somebody opens the chamber, that person could get gassed or injured." Self praises Alexander's efforts in establishing a reference list showing the condition of a particular piece of used equipment.

The emergence of SEC/N assumes greater importance, Self indicates, when one considers that the market for used gear has grown rapidly during the recent downturn. "We've seen more fabs closing in the last two years than we've ever seen in the history of the semiconductor industry. Driven by the downturn, some fabs have become obsolete. There's also a combination of the first two [factors]. Some of the larger corporations are revising their business strategies. Some of the fabs no longer fit into their business plans."

Group 5's Scaife, a former contract broker for Sematech during its transition to new programs in the early 1990s, says it's difficult to determine just how large the industry will become. "The surplus market is tremendously fragmented, and no really accurate measurement of the total market is available. The business is also very volatile. Overall, the industry has a solid growth trend line. From year to year two- and three-times excursions are not unusual. The only generalization I would venture is that business is best in either downturns or upturns of the semiconductor industry. Flat periods provide neither supply nor demand for surplus equipment."

With the industry poised for an upturn, SEC/N may find more players paying a call. Alexander welcomes all comers. Becoming a consortium member requires submitting a company profile describing the firm's involvement in the used equipment industry, why it's important to join, the benefit to joining for the prospective new member, and the benefit for the consortium. Alexander circulates the profile to the member companies.

"They give me some pretty candid feedback on the rap for these folks in the industry," Alexander says. If the company is accepted, it is asked to sign a code of ethics found on SEC/N's Web site at http://www.secninc.com. The prospective member is then asked to secure a sponsor from among the current membership.

What happens if SEC/N receives complaints about a member firm? Alexander stresses that the consortium wants to approach this entire process in a positive way and has no desire to formally certify companies or publicize the names of transgressors. However, he will speak with the member's officials—"I know from my Sematech days there are two sides to every situation"—and suspend the member's participation in the group before asking it to cease using the SEC/N logo. "Then I make a statement that such-and-such company is no longer a member company by virtue of noncompliance with SEC/N's code of ethics," warns Alexander. "It's happened once already."

SEC/N will be a coexhibitor and seminar sponsor at both Semicon Southwest in Austin, TX, October 19—20 and at Semicon Japan in Makuhari, December 1—3. Gary Alexander may be reached at galexander@secninc.com.

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