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Tough times as chip manufacturers turn to cannibalism

15 December 2008 | By Mark Osborne | Editor's Blog

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Semiconductor equipment spare parts Something the semiconductor equipment suppliers probably don’t want people to know about the current state of fab operations is the fact that their spare parts business, an important source of high margin revenues, is under attack. As fab utilizations rates are expected to fall rapidly below 50% in many sectors such as the foundries, chip firms are saving cash by stripping idled tools for spare parts to keep in-work tools going, without resorting to OEM parts service and supply.

Just in the last couple of weeks, we have picked up a number of cases where ‘cannibalism’ is rife. We should also expect OEMs to come under pressure to drop spare parts prices. Where possible, fabs will also increase sourcing from the aftermarket to keep operating costs to a minimum.

The financial analysts may well want to scrutinize order cancellations and push-outs at OEMs at the next round of quarterly conference calls, but would minded to ask about the spare parts business as this has had an impact on margins and sales at ever-growing rates over the last few years. OEMs have been aggressive in pushing this part of the business and it’s a good business to have.

Of course due to lower utilization rates, parts sales will naturally come down. However we could see a higher level of decline now that cannibalism has returned. The last reported cases of cannibalism in the semiconductor industry were reported in 2003.


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