Reducing risk in buying surplus equipment

02/01/1997

Reducing risk in buying surplus equipment

The worldwide surplus semiconductor manufacturing equipment market was estimated to approach $1 billion in 1996. Despite the phenomenal growth and widespread participation in this market, there remain several questions regarding the viability of used equipment. Buyers often perceive that the only available surplus equipment is second rate. Contrary to popular belief, the majority of surplus semiconductor manufacturing equipment comes from the world`s leading-edge fabrication facilities. In most cases, the equipment has been installed for less than half of its productive life and can still be productive for another 5-7 years.

Why, when quality tools are readily available, do buyers typically feel that they must settle for less than they require? Surplus equipment buyers perceive that they are not entitled to the same quality of goods and services and, therefore, do not follow the same purchasing process that they would for new equipment. In fact, it is even more critical to establish feature and performance specs when acquiring used equipment. Buyers generally know what is required for their application, and need to communicate this to the supplier.

The greatest risk a buyer of any capital equipment can run is not setting clear expectations at the time of sale. It is important for both buyer and seller to clearly understand all terms and conditions governing the acquisition of equipment. There are specific steps a manufacturer can follow to ensure a successful buy of a single tool or entire fab line of used equipment.

Written quote. It remains a wise business practice to establish all commitments in writing, leaving no questions unanswered. The frenzied pace of the surplus equipment market often makes this difficult, but not impossible. If a verbal quote is rendered, follow it up in writing within a mutually agreed upon time frame.

Demonstration. Avoid the sight unseen real estate deal! Is the tool in operation or guaranteed operational? Does it perform to the buyer`s standards? Has the tool been decontaminated from its previous installation? Physical review of the equipment often brings up additional questions about the tool`s condition and performance. This is a perfect time to readjust expectations on the part of the buyer and the seller. If the quotation needs readjustment based on the physical review, make sure that changes are received in writing.

Warranty. The majority of surplus equipment is fully worthy of warranty protection. The ability to discuss warranty reveals a lot about a seller`s capabilities. In order to provide this service, however, the seller must be capable of assessing a tool`s condition, functionality, and performance. By inspecting a tool and understanding its condition and value, the seller makes a business decision regarding the tool`s reliability and whether it is feasible to offer a warranty. The buyer derives peace of mind from the warranty, and learns that the seller has a viable inspection process in place to determine which tools are worthy of warranted sale.

Refurbishment services. Is the tool purchased "as is," or fully refurbished, reconditioned, or reconfigured? This area often leads to the greatest friction between buyers and sellers. Pre-established performance requirements are essential in determining the requirements for refurbishment. Buyers and sellers must clearly communicate their expectations and capabilities. Does a work plan exist? If the tool is refurbished, what are the qualifications of personnel doing the work? Will refurbishing delay the delivery schedule?

Return policy. "Caveat emptor" (let the buyer beware) is no longer acceptable in this industry. All buyers must have options available to them if they are dissatisfied with a product and must understand these options at the time of sale. Both buyer and seller need to communicate and agree on the requirements for returning equipment.

Payment terms. Payment terms allow the buyer to have some control in the buying process and ensure that the seller is willing to assume some of the "purchase risk." For example, many suppliers allow milestone-based payment schedules (e.g., 50% at time of order, 25% at delivery, 25% at acceptance test). This schedule not only allows payments to be spread out over time, but also offers some guarantee that performance and feature specs are met.

Delivery. Ownership is transferred at the old fab for many tools on the surplus equipment market. The buyer is actually responsible for equipment removal from and delivery to the new fab. Are delivery costs and insurance assumed by the buyer or the seller? Is the equipment available for immediate purchase and delivery? Does the tool require a climatic carrier?

Installation. Clearly outlining installation requirements at the time of sale can save both parties significant time and money. For example, have the facility requirements been forwarded to the receiving fab? Will the supplier fully install the equipment? Are process engineers and technicians from the fab site required for the installation? Will the seller train the customer`s staff in the use of the tool? Can the installation be completed within the established schedule requirements?

Acceptance terms. Many manufacturers offer acceptance terms on new equipment. This is not always the case with previously owned equipment. If feature and performance specs have already been established, these should be relayed to the seller and incorporated into the final sign-off on the tool. Once installation is complete, running a mutually agreed upon series of tests confirms that the tool will meet specs.

Applications support. It is important that both parties have clear expectations of any required applications support. Does the supplier offer these services internally or via third parties? Is support limited to particular types of equipment?

Spare parts. Most equipment will have parts that need to be replaced with relative frequency. It is essential to review ongoing needs for spare parts at the time of sale. Are consumables available through the equipment resupplier? Are contracts available?

Service. The supplier`s ability to meet the service requirements of a tool is a measure of the quality of the supplier. Is the seller experienced and able to support the tool at the new facility? Does the seller have an infrastructure to meet possible global support requirements?

While this seems to be an exhaustive list of expectations to fulfill for each purchase, procuring surplus equipment can be an excellent, cost-effective alternative to new equipment purchases. Both suppliers and purchasers share the responsibility of defining and meeting expectations; doing so minimizes the risk and maximizes the benefit of acquiring surplus equipment. To meet the requirements of additional capacity, or to make the transition to new technology, high quality equipment is available today from qualified suppliers.

Michael W. Wright is vice president and general manager of Integrated Solutions International; ph 512/719-1617; fax 512/833-7072.