Editorial

To Own or to Lease: for IC Companies, That Is the Question Comdisco may have a solution to the foundry equipment dilemma. by Jonah McLeod

W.J. Sanders III, chairman and CEO at Advanced Micro Devices Inc. (Sunnyvale, CA), coined the phrase "real men own fabs." It was one of those quips for which Sanders is famous, and it captures the spirit of semiconductor manufacturers who have silicon in their blood.

However, the advent of the $1 billion price tag for new fabs is changing the nature of the industry. "Building a new fab is like playing Russian roulette," a Silicon Valley IC company executive laments. "When you build a fab, you hold the gun to your head, pull the trigger, and wait three years to see if you're dead."

The problem is not the land and the building, which represent a small portion of the $1 billion. Equipment cost is what really hurts: mask pattern generator at up to $8 million a copy, chemical vapor deposition systems at $2.5 million each, etc.

If Comdisco Electronics Group of Comdisco Inc. (San Jose, CA) has its way, semiconductor manufacturers will stop buying this equipment. Instead, they will lease it from Comdisco. In the building-binge aftermath of the last few years, leasing is finding converts among acquisitive IC companies.

Paul Edstrom, vice president of electronics business development at Comdisco, says the risk in purchasing the equipment is driving companies to lease. Another factor is the rapid technology turnover from 0.5 µm to 0.35 µm and, soon, to 0.25 µm.

If a company purchases the equipment and cannot keep it producing or cannot get a sufficient return from the silicon it makes, capital cost can bankrupt the company. But, wait! How can a leasing company bear the cost of owning equipment any better than the IC company?

Edstrom says that asset management is an overhead function for manufacturers. A company does not need to own equipment and the responsibility for managing it. It only needs the goods that the machines produce.

Leasing companies, on the other hand, add value by managing physical assets. Edstrom cites the example of a large semiconductor firm that had one division in Japan trying to unload equipment that another division in the U.S. was desperately trying to buy. A leasing company eliminates this problem.

Edstrom says there are numerous other examples where leasing solves insurmountable problems. Reportedly, an undisclosed IC company needing a piece of R&D machinery for two years appealed to the supplier to sell it at a special rate, but the supplier refused. By purchasing the machine and leasing it to the IC vendor, Comdisco enabled a deal that would otherwise not have taken place.

With the rapid pace of technological advance in recent years, leasing companies are seeing a new trend in equipment lease terms. It used to be that 60 months was a typical lease period. Today, that time has been reduced to 39 months.

Leasing is finally catching on in the conservative IC industry. Edstrom cites some statistics to strengthen his case: 70 percent of Comdisco's leased equipment resides in the U.S.; a third of the top IC equipment vendors are partners with Comdisco; and, finally, of the top 20 semiconductor companies, 12 are Comdisco customers.

Real men may own fabs, but increasingly, they are leasing the equipment inside of them.

Jonah McLeod is editor-in-chief of Integrated System Design.

To voice an opinion on this or any Integrated System Design article, please e-mail your message to michael@asic.com.

integrated system design  September 1996