Biggest China opportunity may be for older equipment

By Paula Doe
WaferNews Contributing Editor

It may not be the big guys who benefit most from China’s expanding semiconductor production. While the top tool companies focus on shipping the latest technology, smaller equipment makers and remarketers of used equipment may actually find a bigger market for their older generation products.

“People are waiting for the market to come back, but it ain’t going to come back the way it was before,” says Gary Alexander, president of the used equipment trade group Surplus Equipment Consortium/Network Inc. (SEC/N), Paradise Valley, AZ. “It’s going to come back with a significant number of older generation fabs in China.”

Noting that used equipment usually leads a recovery, he adds, “We were swamped at Semicon China, and we don’t even sell the stuff. They just ask us where they can buy it.”

Indeed, Alexander notes he has been approached by Chinese regional governments that want to buy a whole wafer fab, but don’t care what generation technology it is or what product it will make. They just have technical schools turning out engineering graduates needing jobs, so they are building an industrial park, and they want a wafer fab to get into technology.

Alexander figures the total used equipment market was about $1 billion in 2001, down from $2 billion in 2000, with sales supported largely by the China market, though no one has good numbers for the actual size of China’s used tool demand. “Some companies in the used equipment business had their biggest year ever last year because they were selling into China,” he says, though declining to name names. “OEMs are waiting around to sell 300mm equipment, but 150mm is going big-time.”

Another indication of just how heavily the China market is weighted towards the low end is Applied Materials’ smaller than expected market share there, points out Robert Castellano, president of The Information Network, New Tripoli, PA. He figures Applied sold about $157 million worth of equipment in China in 2001, for a 7% share of China’s total $2 billion total frontend equipment market, or about 20% share of the $800 million segments in which Applied competes. In contrast, Applied has some 20% share of the total equipment market worldwide, and nearly 50% share of the available market in the segments in which it competes.

“If Applied can’t do better, with all the infrastructure they have in China,” says Castellano, “the market for advanced new equipment must not be so big. They’re selling high-end, next-generation tools. But China is buying older stuff.”

Castellano figures about 60% of the China market then must be older generation equipment or used tools. None of these figures include the tools a chipmaker transfers from its own plants elsewhere in the world to its own ventures in China. China currently has only two fabs producing at 0.25 to 0.35-micron geometries, two at 0.5 to 0.8-micron, five at 0.8 to 1.2-micron, and 13, or 60%, still at two microns and larger. “No one is going to go from 1.0-micron to 0.13,” he notes.

While global foundries SMIC and Grace aim to produce as close to the leading edge as the market demands and export controls allow, and investment by some others may mean three to four newer generation fabs are built in China this year, most production for some time will still be of far simpler stuff, where labor costs remain more significant. Castellano says labor makes up 30% of the cost of running a 1 to 2-micron fab, 20% at 0.5 to 1-micron, compared to 10% below 0.5-micron.

Significant growth in sales of used equipment to China will, however, require development of a better supporting infrastructure. The Chinese got severely burned by their first attempts at buying used equipment, and were often unable to install the tools, with no support or parts available. That’s led to defensive measures by the Chinese government, with rules on imports, certification requirements, even sometimes stepping in to tell banks not to pay on letters of credit.

“There’s a whole opportunity to educate folks over there who are buying (and the government) on how the international market works,” says Alexander.



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