by Bob Haavind, Editorial Director, Solid State Technology

A ConFab session on “Capital Equipment: Alternative Financing Models” was kicked off by Craig Ignaszewski, director of capital equipment procurement, IBM, with discussion of the rationale for leasing vs. buying equipment.

Increasing complexity in chipmaking creates greater risk of technological change and obsolescence, which can be mitigated by leasing, he explained. In some cases, equipment is not strategic, but may be useful for a short-term bubble in the market, or a new area with an uncertain future. Leasing makes sense here as well.

Once favorable operating lease treatment is negotiated, there are other benefits to the corporation, according to Ignaszewski: It accelerates the timing of free cash flow, allows alternate sources of funding, and may optimize the tax position.

Leasing also preserves operating and financial flexibility, he added. An agreement should include an early buyout option, as well as a purchase option at the end of the lease. This might include “item-by-item” selection for accessories, add-ons, or parts of a total system. There should also be a substitution capability, he suggested.

IBM also has other alternatives to leasing or buying equipment, he said. Sometimes the company works in joint development programs or does beta evaluations of new tools. Collaboration sometimes involves sharing of development expenses. The company also uses sale-leaseback arrangements, primarily for IBM-owned manufacturing equipment.

Other leasing options were discussed by Zvi Lando, VP at Applied Materials’ Israel operation.

“Metrology and inspection equipment may be the most suitable for leasing,” Lando suggested.

Metrology equipment is usually designed to operate through at least two nodes. But upgrades often can improve the equipment performance, and may be capable of carrying it through a third node. Leasing arrangements can be structured, he explained, to incorporate future upgrades. — B.H.