During the heyday of the second-hand semiconductor equipment market, the time it took to ship from South Korea to China by sea was very short, just 3-4 days, and as long as the transportation capacity was guaranteed, the equipment could be sold as soon as it arrived, with no worries about sales, according to Chen Zhen, the general manager of SurplusGLOBAL Technology (Shanghai) Co., Ltd., who told the author.

In recent years, with the rapid development of the global semiconductor industry and the large-scale construction of domestic wafer factories, the demand for new equipment has surged dramatically. However, the high price of new equipment and the long delivery period have posed a huge financial burden for many start-ups and small and medium-sized enterprises. Against this backdrop, the second-hand equipment market has rapidly risen and become an economically feasible and efficient alternative.

But what exactly is the second-hand semiconductor equipment market? How did it emerge, where does the equipment come from, and who are the main customers? Which regions are the gathering places for players? What is the core value of these devices? To delve into these issues, the author recently interviewed industry expert Chen Zhen.

The Origin and Development of the Second-hand Semiconductor Equipment Market

The preliminary formation of China's second-hand semiconductor equipment market can be traced back to before 2010. At that time, due to the limited number of domestic production lines, the second-hand production equipment circulating in the market was relatively scarce. Therefore, the scale of the second-hand semiconductor equipment market was small and somewhat chaotic at that time, mainly consisting of small enterprises randomly purchasing second-hand equipment from South Korea, resulting in uneven quality of the assembled equipment. In the early market, the acceptance of second-hand equipment was not high, and there were many legacy issues.

Advertisement

However, after 2010, with the increase in the number of domestic semiconductor factories, the market gradually showed development trends. During this period, many factories began to look for engineers with lower hourly costs for equipment maintenance due to the high cost of maintenance by the original factory engineers. "In the early days, South Korean engineers often used their time outside of work, such as weekends or holidays, to provide maintenance services for these devices. At that time, systematic and large-scale refurbishment companies were still very rare."

As time progressed, the second-hand semiconductor equipment market gradually expanded, covering multiple aspects such as services and spare parts supply. Due to the numerous transaction channels of second-hand equipment and the fragmented statistical caliber, unlike the original factory exports, the scale of the second-hand semiconductor equipment market is not easy to calculate. However, Chen Zhen estimates that second-hand equipment accounts for about 5% to 7% of the total sales of all equipment, which is about 50 billion US dollars in 100 billion US dollars. Therefore, many refurbishment companies have noticed the potential of second-hand equipment and began to consider purchasing second-hand semiconductor equipment for refurbishment and resale.

Where do second-hand devices come from and where do they go?

Most of the equipment comes from memory factories that are phased out. This is because memory manufacturers need to be at the forefront of technology, and correspondingly, factories often use the most cutting-edge equipment to maintain competitiveness. The memory manufacturing industry, especially in the fields of DRAM and NAND flash memory, is an industry with very rapid technological progress. To maintain competitiveness, these factories do indeed need to regularly update their manufacturing equipment.

In contrast, the needs of logic factories are different, and many logic factories use processes that cover many mature nodes. For example, logic factories may use 90-nanometer or 110-nanometer technology, while memory factories pursue 5-nanometer or 7-nanometer technology. Therefore, logic wafer factories may be more inclined to use second-hand equipment, especially those wafer factories with more mature process nodes.In recent years, China has invested a significant amount of resources in the field of power semiconductors, such as IGBT and SiC, as well as mature process nodes like fingerprint recognition and power chip manufacturing. Especially in the construction of SiC wafer fabs, the main equipment currently in use is 6-inch equipment, most of which was produced in the 1990s. As a result, many refurbished companies have found development opportunities in this field. These domestic refurbished companies usually deliver refurbished equipment in a TurnKey (handover key) manner.

In the international market, wafer fabs that focus on mature process nodes, such as Texas Instruments (TI) and GlobalFoundries, also show a demand for second-hand semiconductor equipment. Different from the domestic approach, these international companies tend to purchase bare machines without configuration and ask the original factory to customize the design. The advantage of this is that they can not only obtain the required equipment at a lower cost than brand new equipment, but also enjoy the quality assurance of the original factory, ensuring the performance and reliability of the equipment.

Value of Second-hand Equipment

Having said that, what is the value of second-hand equipment? The main reasons why second-hand equipment is favored by the market are attributed to the following key factors:

Low price: A significant price advantage is one of the most prominent values of second-hand equipment. According to Chen Zhen, generally speaking, the price of second-hand equipment is about 70% of the new machine, or even lower, with many devices falling around 50%. This is a very attractive choice for manufacturers with limited budgets or who do not pursue the most cutting-edge technology.

Equipment scarcity: Some old semiconductor equipment has been discontinued, but it is still useful. These devices in the second-hand market have become the only choice.

Short delivery cycle: Second-hand equipment is a stock product and may be sold within 3-4 months, so the delivery time of second-hand equipment is usually shorter than that of new equipment, providing a faster deployment option for companies. Moreover, the technical acceptance of second-hand equipment is similar to that of new equipment, ensuring its stability and reliability when put into production.

The best match for expansion needs: According to Chen Zhen, some wafer fabs, especially expansion on established process nodes, often means the need to replicate the existing production line. This line may have been built 10 years ago, so in this case, purchasing the same model of second-hand equipment has become the most suitable choice. This is not only considered from a cost perspective but also from the familiarity of engineers. Using new equipment means that engineers need to relearn, which may increase the risk of errors and learning costs.

Long life and stability of equipment: Semiconductor equipment usually has a long service life, and some equipment can even be used for more than 20 years. In the clean, temperature, and humidity-controlled environment strictly controlled by the wafer fab, most equipment is not easily damaged, except for some poor working conditions such as wet, etching, or CNP equipment. Even equipment like lithography machines, after a long period of high-temperature work, naturally age, and their performance may decline after about 10 years, but they can still be used at a reduced level.In summary, the market position of second-hand semiconductor equipment is attributed to its cost-effectiveness, mature stability, matching of expansion demand, and the long service life of the equipment itself. These factors collectively make second-hand equipment an ideal choice for many customers, especially those who are cost-sensitive.

In the "second-hand equipment world" of the semiconductor industry, second-hand equipment is not measured by the physical newness of traditional "second-hand" products, such as 99 new, 95 new, etc. Instead, end-users pay more attention to whether the equipment can meet technical requirements and whether the price is reasonable.

In 2023, the second-hand equipment market faces strong competitors.

In the rapid changes of the semiconductor industry, the second-hand equipment market has experienced a series of significant ups and downs.

"Our (SurplusGlobal) business volume in the first year of the pandemic doubled compared to the previous year. The time from shipping from South Korea to the domestic market by sea is very short, only 3-4 days, as long as the transportation capacity is guaranteed, the equipment comes in one and sells one, there is no worry about selling," Chen Zhen told the author. He continued: "What's more, some refurbishment companies' gross profit margins reached an astonishing 70% at that time. Under normal circumstances, the gross profit of second-hand equipment manufacturers is around 30%. However, such market conditions cannot be regarded as the norm for the second-hand market. Under normal circumstances, the second-hand equipment market is a comprehensive and low-cost competitive environment."

Entering 2023, the second-hand semiconductor equipment market faces two major strong competitors.

Chen Zhen said: "On the one hand, the rise of domestic equipment manufacturers has had a significant impact on the second-hand market. Many domestic manufacturers have successfully developed competitive semiconductor equipment, such as particle detectors and CMP equipment, which directly puts pressure on the prices of second-hand equipment."

Chen Zhen further pointed out that currently, domestic equipment manufacturers are also very competitive in the field of mature equipment, such as in the areas of alignment equipment and wet equipment, homogenization competition is also very serious, which also brings the second-hand equipment market into the mix. SurplusGLOBAL sells relatively fewer of such equipment in the Chinese market compared to the foreign market. In addition, 6-inch and 8-inch PVD equipment is also relatively less produced because in these areas, many domestic equipment is already doing very well, with similar structures and principles. As a result, the price of a certain second-hand model of Applied Materials' PVD on the market has also dropped sharply. However, the market for second-hand equipment is still very good where domestic equipment cannot be produced.

Another phenomenon is that international equipment manufacturers are starting to launch new mature equipment, especially in the field of lithography equipment. Chen Zhen mentioned that in the past, the main source of domestic second-hand 6-inch and 8-inch lithography equipment was Canon and Nikon's i-line products (ASML also has some), but the overall price has fallen this year. Behind this change, there are both market demand changes, the expansion of 6-inch and 8-inch is not as fierce as in previous years, in addition, a very important point is that Canon has now launched a new 6-inch lithography machine, while Nikon also plans to sell new equipment NSR-2205iL1 in 2024.

Nikon said that due to the popularity of electric vehicles, high-speed communication, and various IT devices, the demand for semiconductors is growing exponentially. Nikon usually meets the demand for such lithography systems by refurbishing existing steppers and other equipment. However, the supply of refurbished steppers may be limited and may not meet all customer needs, so Nikon has launched a new 5x i-line stepper to provide more flexible exposure equipment solutions.Moreover, the price of these new machines is not high, around 5 million US dollars. "These new machines have set the ceiling for equipment, and second-hand equipment has to be reduced in price. If compared with the peak price, it may be halved," Chen Zhen pointed out.

The combined effect of these two factors has led to an intensified market price differentiation in the second-hand equipment market, with lower prices for low-end products and higher prices for high-end products. Overall, the second-hand semiconductor equipment market fell into a slump in 2023, and market confidence has not yet recovered. Many refurbished companies have changed their strategies, no longer hoarding a large amount of equipment, but turning to a cash-centric business model.

Second-hand equipment players: There is a market where there are people.

On the one hand, semiconductor second-hand equipment is idle due to the elimination of advanced manufacturing technology, but on the other hand, it has great market potential due to its relatively low cost and high performance ratio. In the turmoil of international trade and supply chain, the second-hand equipment market provides a stage for value reassessment and resource reuse.

In this market, there are many participants, including professional companies engaged in equipment refurbishment and maintenance, who use professional knowledge and technology to give new life to old equipment; fab manufacturers seeking low-cost expansion, who are looking for a balance between cost and efficiency; and various intermediaries and traders, who build bridges between buyers and sellers, looking for trading opportunities. These different roles together form a complex and variable ecosystem.

Geographically, as mentioned earlier, second-hand semiconductor equipment mainly comes from the memory manufacturing field, so South Korea, with many storage giants, naturally becomes an important base for a large number of refurbishment companies. South Korean storage giants represented by Samsung and SK Hynix hold a leading position in the global semiconductor industry. These companies will eliminate a batch of equipment every five years, providing a large supply of equipment for the second-hand market.

In addition to South Korea, Taiwan also has a place in the field of second-hand semiconductor equipment. Its market characteristics are mainly to serve the mainland market. In the early days, those who came to the mainland to set up factories were often from Taiwan. Thanks to the early market layout and the closeness of language and culture, Taiwan's refurbishment companies have also developed to a certain extent.

In recent years, with the rapid growth of Chinese user demand, the growth of Chinese refurbishment companies in terms of ability and scale can be described as rapid. Some companies have reached a scale of hundreds to thousands of people, and their sales are also considerable. At the same time, domestic refurbishment companies are also actively improving their internal strength, making great efforts in the accumulation and upgrading of technology. While providing good technical services to customers, they also cooperate with customers to develop or upgrade new functions on the original platform. At the same time, they continue to invest in R&D in the spare parts supply chain to provide long-term protection for the existing old production equipment. Chinese refurbishment companies have shown a trend of surpassing similar enterprises in other regions.Under the dual impact of international supply chain disruptions and national policy bans, China's second-hand equipment refurbishment companies have ushered in a unique development opportunity. In the early stages of the pandemic, the global supply chain suffered an unprecedented shock, during which China's Fab factories stood out. Driven by emerging demands such as infrared detection and mobile office, the production capacity of these Fab factories reached its limit and urgently needed expansion. It was during this phase that many second-hand equipment refurbishment companies reaped the benefits.

As time went by, these refurbishment companies made a fortune, with some beginning to seek listings, while others started to shift from refurbishment to the production of new equipment. Some companies, considering the scarcity and high prices of original factory parts, began to develop alternative equipment parts on their own. The tempting business opportunities have attracted more and more people to start their own refurbishment companies.

However, entering this field is not easy. Chen Zhen pointed out: "Firstly, is your cash flow sufficient to afford the equipment? Secondly, will the market still be so good? Is the timing of the entry right? If it happens to coincide with the semiconductor downturn in 2023, what can you do? It's nothing more than low-price competition, competing with your old employer. This kind of competition may not be very meaningful and may even block the way forward. Looking forward, it is expected that the market will gradually return to normal next year. Even if the market recovers, it is unlikely to see explosive growth like in 2021 and 2022. The second-hand equipment market will return to its essence - helping customers reduce costs. The days of high gross profit margins may not come again, and the market will tend to be stable and rational."

In conclusion, the value of second-hand equipment is not only reflected in its economic benefits but also in its contribution to technological development and resource reuse. The story of the second-hand semiconductor equipment market has proven a truth: in the wave of innovation and change, even forgotten old things can be reborn and become an important force in promoting progress. In the semiconductor industry, the story of second-hand equipment will continue, drawing its own unique landscape.