COVID-19 highlights the gravity of the secondary market for SME

For an industry accustomed to planning in years, not months, the unpredictability stemming from COVID-19 has caused several major IDMs & foundries to withdraw guidance for 2020, even for this quarter, because simply put, no one really knows what is going to happen. While the future may be unclear, Moov – a global marketplace for pre-owned semiconductor equipment – is confident in one prediction: the secondary market for semiconductor manufacturing equipment (SME) will become more important now than ever before. Here follows Moov’s analysis to why COVID-19’s impact will be a story about the secondary SME market: Cutting edge demand remains intact Leading equipment OEMs, like ASML, as well as leading foundries, like TSMC have reported they do not expect significant impact on cutting edge nodes. ..but mature fabs address moving targets The global pandemic and economic downturn has led to a decrease in demand for automotive and consumer electronics applications, which has in turn reportedly led to decreased utilisation rates in mature fabs, as stated in an article in DigiTimes. At the same time, increased demand for memory from data centres and other related applications to support an uptick in streaming services, video conferencing, and other remote work and home entertainment activities, has created pockets of opportunity. How consumers, businesses, and global economies respond to COVID-19 is unpredictable both in the short term and as it impacts consumer and enterprise behaviours in the long term. IDMs and foundries that are able to react quickly and maintain flexibility have a better chance of weathering, and even profiting from unpredictability. The industry needs new strategies to mitigate new uncertainties As LAM CEO and long-time industry veteran, Tim Archer noted during the company’s recent earnings call, during slowdowns “customers turn to how they get and extract the most value out of the install base they have.” However, COVID-19 related travel and trade restrictions have created uncertainty around planned installations this year, making it more challenging to predict exactly what those installation bases will look like from month to month. While Archer stated lead times “clearly have stretched” and TSMC CEO C.C. Wei put tool delays at 2-4 weeks for the world’s largest foundry, in the scheme of things, these delays are less material to an industry accustomed to long lead times than the uncertainty around when installations will occur. As ASML CEO Peter Wennink noted in the company’s Q1 earnings call, some IDMs & foundries have responded to anticipated delays by asking OEMs to expedite shipping before tooling finishes Final Factory Acceptance Tests. Others have pushed out orders to avoid pile ups as planned installation dates continue to be impacted by government lockdowns, shelter in place orders, and otherwise changing local dynamics around the world. Clearly, these strategies to mitigate equipment uncertainties are less than ideal. However, the secondary equipment market would afford IDMs and foundries the opportunity to mitigate supply chain risk by offering geographically diverse supply sources, which are critical as local circumstances continue to change daily. The secondary equipment market also offers semiconductor manufacturers shorter equipment lead times to address COVID-related impact on planned installations, part replacements, and so on. as they happen. “As many of our manufacturers' clients fall into the essential business category, Moov has created a more robust way of having tools delivered on-demand,” said Maxam Yeung, Co-Founder and Managing Director at Moov. “Our clients can now go online and track, in real-time, the stage of logistics that their equipment is in. With this new software feature, paired with our logistics concierge, Moov customers now have full control, transparency, and communication at every step. At Moov, we believe the post-sale service is just as important as the sale itself - an important fact that other industry players often neglect.” Increased liquidity is the answer to maximising short term profitability, and hedging for long-term impact When asked how the company plans to minimise the impact of COVID-19 on utilisation rates, Wendell Huang, TSMC’s CFO, noted the foundry would “prebuild” some of the products they feel confident there will be demand for in the future. But, as one analyst pointed out, will this just push the impact of COVID-19 down the line if demand doesn’t materialise? Even the most prescient industry veterans cannot answer questions that impact both short to mid-term demand and long-term dynamics like, “When will economies across the world hit rock bottom?” “Will there be future waves of COVID-19 that impact supply chains and production?” “Will COVID-19 have a lasting impact on how and where people work, socialise, travel?” The response by the world’s largest foundry regarding strategy to mitigate short-term efficiency loss once again points to the challenges with equipment liquidity that the semiconductor industry faces. Unanticipated spikes in end markets like PCs and data centre hardware create opportunities for semiconductor companies in the short term, but only if they have the flexibility to shift production lines to quickly respond to demand. In addition to short term opportunities from spikes in end market demand, dips in demand have also been known to lead IDMs to outsource production to foundries in order to increase efficiency. The ability to respond to these opportunities could meaningfully impact short-term profitability – that is if manufacturers could more nimbly shift production lines. While protracted contraction in the secondary market will create challenges for some players in the ecosystem, it will also create opportunities. As pointed out by Moov, the company has already seen a reduction in pricing on select equipment as more highly leveraged inventory carrying brokers lower prices to offload inventory, improve cash flow, and bridge the gap. The secondary market for manufacturing equipment creates the liquidity the semiconductor industry needs to more nimbly respond to short-term dynamics. “During slowdowns, finding value in underutilised assets is key,” said Nicholas Meissner, Head of Sales at Moov. “For example, IDMs and OSATs are working with Moov to trade-in idle and surplus tools in order to free up capital for more immediate needs.” In conclusion, while the semiconductor industry has weathered COVID-19 better than many industries, the challenges posed by this pandemic only serve to highlight the industry’s need for increased flexibility when it comes to investing in capital equipment. If uncertainty becomes the new norm, manufacturers with the ability to adapt capacity, production lines, and even geography will be positioned for success no matter what the future brings.

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Moov – a global marketplace for pre-owned semiconductor equipment – matches idle or surplus equipment with buyers who seek high quality equipment at a deep discount and reduced lead-time. The platform also integrates offerings such as payments, logistics, asset management, and other add-on services.