It is no secret that current economic weakness has taken a toll on all company’s top lines. Particularly in the chip sector, the business rule of cutting capital spendings to conserve cash and keep the balance sheet clean has translated into slower development in sales of chips to power the servers, computers, and small devices that power so many of the country’s businesses. Thankfully, tendencies toward mobile connectivity has kept demand for certain semiconductor components strong, and many manufacturers are in the somewhat hopeful position having to increase capacity to meet current and future need for the chips that will unavoidably find their ways into yet more technological uses as innovation offers new paths to greater productivity and entertainment.
For numerous manufacturers who favor old school fiscally moderate models, however, raising capacity through cap-ex can carry with it a higher risk profile, given the possible case of a slower-than-expected economic rebound. To mitigate the risk of this decision, many manufacturers have found handy ways to reduce risk by trimming the cost of increasing capacity.
For instance, chip makers like Micron, AMD, and Applied Materials have found ways to reduce the cost of adding gas delivery systems by buying lower-cost refurbished gas cabinet units and components. These refurbished units, which can account for a sizeable portion of equipment costs, sell for a fraction of the price of newer units and are re-manufactured to the same specs of new units – all backed by a safety and reliability guarantee. While gas delivery systems bearing any refurbished gas cabinets that aren’t likely to be the most cutting edge units, manufacturers can employ them as a stop-gap to increase capacity in processes that require less than the cutting-edge technology necessary to manufacture the newest, smallest, and most intricate chips.
Because the rate of innovation in the chip market is so rapid (Moore’s law), the procedures and machinery used in manufacturing can quickly become obsolete. A delivery system with gas cabinets is therefore vulnerable to great depreciation – depreciation that is decreased by purchasing re-manufactured equipment that was purchased by the re-manufacturer at that already devalued price. Lower depreciation frees up cash on the books and gives companies the strong financial position they need to make essential investments in cutting edge technology and capacity that will be in high demand when the economy rallies and trends in smart devices, mobile computing and connectivity, and solar energy understand their potential.
