INDUSTRY NEWS

Trend to Web-based suppliers continues; new e-commerce parts firm sets July launch

Yet another firm has joined the small but growing list of companies offering semiconductor parts and materials over the Internet. Set to launch in July, the new company, netMercury.com, is the result of a merger between Teleparts International and THT Sales. Teleparts was a Fremont, CA­based supplier of spare parts and consumables. THT of Dallas was a distributor of spare parts and consumables for both the semiconductor and disk industries.

The two firms had combined annual revenues of approximately $30 million selling to what Kenneth Smith, netMercury.com's new CEO, calls "tier-one customers around the world." The netMercury.com Web site will automate the selling and buying of spare parts, consumables, and materials. Smith was the founder of Teleparts. The founder of THT Sales, Terry Hollingshead, is now president of netMercury.com.

Smith believes that building his new e-business on the framework of the two firms' existing customer bases will give it a head start in a competitive field. The firm's inventory-management experience, along with customers clamoring for some relief, will make it difficult for potential competitors, Smith contends.

"The customers are driving this strategy," Smith says. "They've come to us and said, 'You know, I don't want to have 1000 suppliers and 100 buyers.' There's a huge driver on the customer side to narrow down the supply chain."

Recently, at least two other Web-based firms with similar business plans made their debuts. TheSupply.com, the subject of the lead news story in the March 2000 issue of MICRO, announced it would open for business this spring. SemiSales.com, another on-line supplier mentioned in the same article, plans to open its site in July. Like netMercury.com, both have industry veterans at their helms.

TheSupply.com is headed by Geoff Wild, former president of both AlliedSignal's electronic materials division and Johnson Matthey Electronics. His company will focus more on materials than netMercury.com, which Smith says will operate "in a different product sector." Smith says his premerger bricks-and-mortar company had "a lot of customers on the post­CMP clean side. We owned about 90% of the worldwide market in post­CMP clean." All of the new Internet supply-chain firms are drawn by the allure of a market with an estimated value of $60 billion to $72 billion. Smith says netMercury.com's potential market is approximately $40 billion.

Smith dismisses Web sites where the "integrator just steps aside and has nothing to do with the delivery [of the product]. I'm not sure there's a lot of value added for the customers." He says that netMercury.com's highly automated system will add the Internet's "connectivity and scaleability" to offer real-time connections to customers. "We can get a daily snapshot of inventory levels sent by e-mail or sent by a direct EDS link."

One of the on-line startup's key functions will be to provide critical spare parts, Teleparts's area of expertise. These components include process chamber parts, cleanroom construction materials such as piping, and original equipment parts. Smith reckons that customers can save $100 to $150 per order by eliminating transaction fees and the "paperwork flow. All of that goes away."

Smith insists that netMercury.com will have full inventory management and replenishment capabilities. "You come home from work, open the fridge, and your food will be there. We know what you want because we went through your trash, and we've been working with you for a year . . . so that when you go home on Friday, the first thing you want is to grab a Coors Lite and a TV dinner, and it's there."

NetMercury.com has 100,000 parts in its main database, according to Smith. Parts include motors, bearings, and O-rings. Eliminating parts redundancies will help customers reduce inventory, he points out. Part numbers assigned by OEMs may differ from those assigned by the customers, resulting in duplication in factory stockrooms. "They may have some parts in bin boxes and they might not even know it." Over the years Teleparts has developed cross-referencing systems that eliminate the confusion.

The company's CEO also suggests that netMercury.com can act as a middleman, taking parts demands from 10 to 15 factories within a concentrated geographic area in the United States. Assuming that up to 50% of the parts used by factories in that region are the same, Smith foresees consolidating the demand and using the on-line supplier for just-in-case inventory management. He maintains that such an operation could reduce "four just-in-case parts on the shelf to just one or two. This is a huge, huge deal for the factories because they don't have to keep millions of dollars in inventory on their shelves."

If the on-line business works as proposed, the executive suggests that customer yields will improve for several reasons. Ultimately, he contends, equipment uptime will improve. "Chances are we'll have the part more often than the OEM does . . . because the OEM focus has been on building new equipment instead of providing spare parts in their inventory."

He also notes that factory automation software linked to equipment and ultimately to process diagnostics alerts engineers "when a part is needed. Yield starts to deteriorate as parts start to deteriorate." Smith expects his company to reach the point "where we know that the machine needs the part before the machine needs the part."

"The basic answer [to the yield question] is that we can allow the customer to focus more on making a better chip than on procuring a part," Smith says. "Customers have told us they will redeploy people in other key areas in the company."