Semiconductor Users and IDMs Face Strategic Purchasing Decision Point

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The consensus view at Semicon West 2013 was demand for both devices and equipment will increase in 2014. Soon Buyers of both devices and at IDMs will face a key decisions point on purchasing strategy to insure. Done well there is an opportunity to create a competitive advantage for the organization.

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Semiconductor Users and IDMs Face Strategic Purchasing Decision Point

  1. 1. Semiconductor Users and Device Manufacturers Face Key Decision Point For Purchasing Strategies and Plans Semicon West 2013 consensus view: Demand for Devices is expected to increase in 2014. Demand for equipment is expected to increase substantially in 2014 Bill Kohnen July 2013
  2. 2. Background • Semiconductor Usage is Forecast to rise in 2014 • Semiconductor Equipment Demand expected to increase significantly in 2014 • Current inventory of Semiconductor devices low at users and high at device manufactures • Equipment manufacturers have very little inventory and as seen during last cycle because of heavy reliance on outsourced production they have trouble scaling quickly • Inventory of used and refurbished equipment not large • Materials Suppliers generally more responsive to upturn but also more aggressive in optimizing revenue when constraints are in place Bill Kohnen July 2013
  3. 3. Timing factors for both Semiconductor end Buyers and Device Manufacturers 0 2 4 6 8 10 12 14 16 18 Q3 Q4 Q1 Q2 Q3 Q4 Device Inventory Device Leadtime Equipment Leadtime Inventory Used Equipment Cost Bill Kohnen July 2013
  4. 4. The Sweet Spot for Action will be in Q4 and early Q1 • While the general situation applies across the industry there is some variability based on: – Application – Device type – Technology node – Process All Buyers of Devices, Equipment, and Materials will face cost and lead-time challenges by Q2 2014 Bill Kohnen July 2013
  5. 5. Possible Actions Approach Action Now Q4 Q1 Most Aggressive Early Competition of Forecast. Approach supply base with forecast and negotiate price. Identify gaps and find alternate sources options. Ordering Most Critical Items Start building inventory on most critical items Budget Approvals Start Ordering Underway Building inventory Alternate sources qualified. Requirements forecast out to supply base Visits to Suppliers to confirm capacity allocations Budget Approvals Complete Receipt of Items. Evaluate Inventory position and continue open pipeline from suppliers if needed Additional equipment orders in place as needed Continued Sourcing refurb or secondary market Higher Risk but Potential For Competitive Advantage based on Ability to Deliver and Cost Bill Kohnen July 2013
  6. 6. Possible Actions Approach Action Now Q4 Q1 Moderate Normal Planning and Budgeting with extra emphasis on gaps Approach supply base with current forecast Identify plan to meet gaps Requirements forecast out to supply base Start building inventory on most critical items Budget Approvals In process Some Purchase commitment for critical gap items Initiate Buying plan adjusted on actual forecast More aggressive sourcing from Used and secondary markets Visits to suppliers to confirm capacity Monthly reviews to increase Buy plan as needed Lower Risk upfront but Requires Very Professional Execution By Operations, Purchasing, and Suppliers to Maintain Market PositionBill Kohnen July 2013
  7. 7. Possible Actions Approach Action Now Q4 Q1 Low Normal Planning Process No special action taken Review forecast and plans for signs of increase and start to plan for upside Approach Supply Base as needed for increased requirements No upfront risk however high risk of missing opportunities, losing market share and higher costs. Bill Kohnen July 2013
  8. 8. Front End Areas to watch Item Comment Epi Wafers/Epi Systems With increased demand for mixed signal integrated wafers companies that rely on wafer suppliers for this could find constrained capacity and higher prices Implant Systems Particularly for lower technology nodes that need to increase capacity. Good idea to align now with outsource provider. Test Wafers/Reclaim Relatively low cost to stock up now Chemical and Gas Particularly those with raw materials and demand from outside the semiconductor industry Lithography and Photo masks Particularly for mid sized device makers not on leading edge process. Getting support for equipment and aligning with good merchant mask supplier is critical Bill Kohnen July 2013
  9. 9. Back End Areas to watch Item Comment Handlers Consolidation of industry with players that focus primarily on ‘big fish” A real area to buy early and/or tap the refurb market. If smaller company can meet your needs align with them early Service and Support for Equipment If renegotiating a maintenance agreement might be good to include onsite support. Particularly in Asia. WLP/CSP Packaging Materials Not enough capacity overall. Need to qualify multiple source and take inventory Discrete Packaging Will emerge as a “surprise” constraint in this upturn as some companies move focus to more lucrative front end items, others companies continue operational struggles. The preferred suppliers will quickly reach capacity. Substrates Following Japan Tsunami this was addressed but will be challenged with further growth Die Attach Material There occasionally are spot shortages and there has been transfer of production to new factories that will be tested be increased demand. Bill Kohnen July 2013
  10. 10. For Semiconductor Buyers Item Comment Older Generation Parts Build inventory and go now to direct suppliers to discuss application and be prepared to offer price increase now to assure supply Seek out Suppliers that are focused on developing in your segment It does not even have to be the entire company. It could be a strong product line within a company. Bringing in Suppliers now on early design projects will create leverage for production items Especially effective with companies focused on an Engineering sales approach. For US Based companies remember more regulation on protecting against counterfeiting may curtail your use of brokers Means authorized distributors that may not stock your high volume items if not widely used. Device makers give preference to customers that are demanding but fair and visit the factories Especially effective is a benchmark technology review which will get you time with the factory leaders If it is just an audit you may not get past the site QA Manager and Operations Supervisors. Bill Kohnen July 2013

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