Semis Find Methods to Encourage Cash, Margins Amid Slump
It is no secret that recent economic failing has taken a toll on all company’s top lines. Particularly in the chip sector, the business formula of cutting capital spendings to conserve cash and keep the balance sheet clean has translated into slower growth in sales of chips to power the servers, computers, and small devices that power so many of the country’s businesses. Thankfully, shifts toward mobile connectivity has kept need for certain semiconductor components strong, and many manufacturers are in the somewhat fortunate position having to increase capacity to meet current and future demand for the chips that will inevitably find their ways into yet more technological applications 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 gamble of this decision, many manufacturers have found handy ways to reduce risk by cutting the cost of increasing capacity.
For instance, chip makers like Micron, AMD, and Applied Materials have found ways to cut the cost of adding gas delivery systems by buying lower-priced 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 specification of new units – all endorsed by a safety and reliability guarantee. While gas delivery systems carrying any refurbished gas cabinets that aren’t likely to be the most cutting edge units, manufacturers can use them as a stop-gap to gain capacity in procedures that require less than the cutting-edge technology necessary to manufacture the freshest, tiniest, and most complex chips.
Because the rate of innovation in the chip space is so rapid (Moore’s law), the procedures and machinery used in manufacturing can quickly become out-of-date. A delivery system with gas cabinets is therefore susceptible to great depreciation – depreciation that is downplayed 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 provides companies the strong financial power they need to make essential investments in cutting edge technology and capacity that will be in high demand when the economy rebounds and trends in smart devices, mobile computing and connectivity, and solar energy actualize their potential.