INDUSTRY NEWS

SEMICON WEST 98

Life during downturn: some take lemons, make lemonade

SAN FRANCISCO—Responding to market conditions, some chipmakers and suppliers have adopted successful strategies to sweeten the bitter taste of a business gone sour. Call it the "making-lemonade" approach to handling the semiconductor industry downturn.

One such company is Luxtron, whose primary customers are manufacturers of big process tools such as plasma, wet etch, CMP, and RTP equipment. However, the supplier found that selling its in situ process control systems directly to end-users has brought in revenues that otherwise might have been lost to it. When you consider that James Morgan, Applied Materials' chairman and CEO, told a news conference audience here at Semicon West 98 that "the current environment is one of the toughest I've ever seen," Luxtron's approach makes sense—or cents, as it turns out.

Showtime: SEMI president Stanley Myers, top left, shares ribbon-cutting ceremonies with Peter Younger and Shoichiro Yoshida on the opening day of Semicon West 98 in San Francisco. Yoshida, president of Nikon, is the new chairman of SEMI's board of directors. Younger, vice president and general manager of Eaton, is the outgoing chairman. Photos by Joe Orlando Photography.

Fabs trying to maximize their installed tool base were already ringing up Luxtron's headquarters in Santa Clara, CA. "Orders are coming in from emergency funds for cost, yield, and throughput improvements," Bob Goodman, president and CEO, said at the Luxtron booth during the mid-July show, adding that demand is coming from companies "facing tremendous cost and yield pressures." Luxtron's in situ endpoint detectors and in situ temperature measurement tools are well suited to the need to minimize contamination and processing downtime, he maintains.

"Our goal is to be integrated into all of the leading-edge semiconductor equipment that is then passed on to the end-user base," the executive said in a subsequent interview. "That continues to be our strategy." Goodman acknowledged that serving end-users directly "certainly takes more resources. Typically, the volumes are lower. . . but it's a useful [approach] in this environment, where the equipment manufacturers face some challenges in selling new equipment."

Providing "retrofit solutions" for endusers of installed process tools enables the fab customers "to continue being competitive. . . in this environment that requires the smaller geometries, more die on the existing wafer, lowering costs, improving throughput, and enhancing yield," Goodman added.

Luxtron recently closed a deal worth approximately $1 million with a South Korean fab for plasma etch endpoint detectors, the executive noted. "Our semiconductor endpoint business is up from last year, which is quite remarkable on its own. I don't believe that a lot of people are able to say that nowadays. It would not have been the case if we had been 100% dedicated to OEM [sales]."

Tefen USA is another supplier that has been able to minimize market losses by responding flexibly to fab customer requirements. Headquartered in Foster City, CA, the engineering consultancy provides productivity enhancement tools and services. Tefen made a key decision to shift the focus of its product offerings to cost reduction from simple overall equipment effectiveness. The company coupled this approach with a "success-based" pricing model that minimizes the risk to the fab by requiring payment only when the client shows actual savings related to Tefen's work.

"I wouldn't say overall business has been up," said Amnon Raviv, vice president of West Coast operations. "I would say we've been able to maintain our volume. Because we changed our approach to a success-based and cost reduction program, we were able to stay with old clients and work with new clients, whereas if we were to continue with the traditional software methods and tools our revenues would have gone down for sure."

Raviv said Tefen noticed "that everybody wants to do cost reduction. The vice president of operations or the fab manager is under a lot of pressure to reduce operating costs. The problem with this idea is if somebody comes to them and says, 'I need your money to help you reduce your costs,' there's a contradiction in terms there."

Tefen's solution is to have clients make deferred payments on a percentage of their cost savings. Payments can be deferred "even till the next budget year," said Raviv. "Tying our fees to the success [of the project] means it's a true partnership. If there's no success there's no payment. Even if we save them $1 and they pay us 10 cents on every dollar they save it's a good deal for them, right?"

"When we presented this idea a year ago there was not much interest," noted Doron Meyersdorf, Tefen USA's vice president of research and development. "Nobody had time to deal with the peanuts. But as things became worse, more and more focus was given to cost reduction systems."

Raviv said the expense budget of a typical fab can run into the "tens of millions of dollars. Even small fabs spend $2 million to $4 million on expenses for consumables, test wafers, spare parts, overtime, resist bottles, and material they need to run the fab."

The use of test wafers constitutes "one of the largest items in the fab expense budget," said Raviv, and it's one area where Tefen has been able to help with a test wafer management system introduced earlier this year. Manufacturing fabs with R&D lines in particular "chew up a lot of test wafers."

According to Raviv, the wafers are "a big business" costing between 10% and 15% of a fab's total expense budget. Many semiconductor manufacturers in this business climate realize that their test wafer practices "are a problem area and most of them try to take care of it internally." However, controlling and managing test wafer use is "a pretty difficult task" because most WIP control systems "track lots, not individual wafers." Fabs simply lack the systematic tools to do the job themselves, he maintains. "We help them squeeze the lemon." A recent client was a West Coast chipmaker with an 8-in. fab conducting "a lot of R&D" and trying to track test wafer consumption manually "by the production folk. They had been spending tons of money of test wafers and within two quarters we were able to cut their usage and therefore their spending by over 50%."

He cited another example of a Southern California—based R&D fab and volume manufacturer. Tefen, he said, studied their warehouse, spare parts consumption patterns, and inventory practices "and found a potential savings of 30%." They were able to reduce costs by keeping parts off-site and using "different types of agreements with their vendors. A lot of etch and thin-film tools use tons of spare parts like targets, sources, even small things like O-rings and valves. A lot of those parts need to be replaced on a regular basis . . . or they break down."

In addition to dealing with "the peanuts," the industry is spending time preparing for the inevitable upswing, according to at least one equipment company executive. "What we're seeing is a pickup in engineering activity," says K. Charles Janac, president and CEO of Smart Machines, a manufacturer of process tool automation equipment. "There are a significant number of design ideas coming out of our customers. Some of them are pretty creative, so people are thinking seriously about how to do things better. Before [the industry slump] it was, 'Let's ship what we've got. We'll worry about improvements later.' Now it's fairly creative stuff."

Smart Machines introduced what it calls "process tool building blocks" at Semicon West, an expanded family of vacuum and atmospheric robots, wafer aligners, vacuum elevators, and loadlocks for wafer handling. "One of the innovative ideas we have is to create automation to handle either 8- or 12-in. wafers," said Janac. Noting the delay in the 300-mm conversion, he sees a trend toward the design of "transition tools" that can "with a small amount of effort" be converted from 200- to 300-mm use.

"Our market share in the U.S. and Japan is reasonably active, more than you'd expect," Janac said. "The Japanese have been around for 2000 years; they'll be around for another 2000. You have to have a historical perspective."

A sense of history in a business that's been around for approximately 40 years probably would help its practitioners cope with the roller coaster ride. On the opening day news conference, Stan Myers, SEMI's president, gazed over the assembled press vultures and referred to "the question on all of our minds." Noting that the press contingent was the largest in the show's history, Myers continued, "I don't want to tip my hand but when I asked [SEMI analyst] Dick Greene about the downturn the only thing he said is that he's damn glad there're no tall buildings in Silicon Valley."

The gallows humor drew the expected chuckles, but Myers remarked as the conference ended that suppliers continue to have faith in the future, despite the latest travails. Sharing the dais with Myers, Applied Materials' Morgan said that the process tool giant continues to aggressively work with customers and develop new tools despite the "economic and technological transition" confronting the industry.

"Our SEMI members are not eating their seed corn," Myers seconded. "They're replanting it."

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