SurplusGLOBAL: your legacy supply-chain integrated solution partners

As a leading company in the trading and management of legacy semiconductor production and testing equipment, could you explain the importance of companies like yours for the semiconductor industry?

In this industry, the leading-edge companies, such as the major Top 5 companies: ASML, AMAT, LAM, TEL, KLA, prioritize the development of innovative technology above all else. They invest all of their resources into pioneering new technologies. However, within the legacy sector, there still exist numerous six-inch fabs and eight-inch fabs. Currently, eight-inch fabs account for 25-30% of global capacity.

In reality, many legacy fabs, particularly eight-inch and six-inch fabs, globally spanning over 2000 companies or almost 1000 fabs, face significant supply chain challenges. Some of the parts they employ were purchased as far back as 40 years ago, rendering their replacement exceedingly difficult due to obsolescence. Leading-edge companies have already ceased efforts to maintain their supply chains due to the impracticality of the task.

While various solutions exist in the market to address the legacy segment, such as in the 65-nanometer or 45-nanometer range, original equipment manufacturers and legacy solution providers can only cover certain aspects within this domain. However, many older tools encounter severe supply chain issues, struggling to procure necessary parts or equipment from the market.

In response to these challenges, TSMC has established its own system in Taiwan, while a Chinese fab is also developing its supply chain in China. Intel, with its focus on 12-inch fabs, is exploring third-party solutions in the U.S. due to the high prices offered by OEMs. Some OEMs have announced the discontinuation of support for tools that are two decades old. Meanwhile, Samsung and SK Hynix have long been engaged in developing legacy solutions.

In Korea and Taiwan, legacy third-party solutions are relatively more robust compared to the U.S. and Europe. Typically, OEMs have abandoned the repair or supply of old parts. For instance, DB HiTek in Korea attempts to procure certain parts but finds no suppliers available, compelling them to establish their own supply chain within Korea, utilizing used or repaired components. This endeavor entails learning about aging parts, posing a significant challenge for the next 30 years.

However, DB HiTek cannot independently cover all aspects of the supply chain. Consequently, these issues underscore the fragmented nature of the market. Supply chain challenges extend beyond equipment to encompass parts and services. In this context, we envision ourselves as a global platform for legacy equipment and parts.

While we may lack advanced technology, there are many refurbishers worldwide who independently refurbish or repair old legacy equipment. Globally, there are around 1000 refurbishers, with 300 in Korea, 150 in Taiwan, 200 in China, 30 in the U.S., 50 in Japan, and 70-80 in Singapore. These refurbishers play a vital role in supporting all legacy fabs and have developed localized solutions.

While there are some solutions available for global foundries, every party faces significant challenges, including Samsung, and TSMC eight-inch foundries. OEMs primarily support expensive parts, neglecting services or parts that demand substantial efforts. However, there is a need for someone to integrate local solutions on a global scale. Thus, we believe we can integrate these local solutions from Korea, Taiwan, the U.S., Japan, and China, offering a continuous supply chain for the next 30 years to global customers. This is our ultimate ambition.

Supply chain redesign is currently underway. Global foundries are also planning similar reshoring efforts. How do you perceive the evolution of the global supply chain, and to what extent do you foresee the US resuming microchip manufacturing?

To be frank, the cost in the U.S. is considerably higher than in Asia. Morris Chang, the founder of TSMC, noted that chip manufacturing in the USA would incur costs 1.6 times higher than in Taiwan. However, there are subsidies being provided by the U.S. government. Many U.S. device companies show a keen interest in solutions from Taiwan and Korea. At times, they find themselves competing by adjusting prices. Unlike in Asia, where TSMC and Samsung are less reliant on OEMs, relying only to about 30%, U.S. device companies predominantly lean on OEMs, accounting for 95-97% of their operations.

Nevertheless, these U.S. fabs are increasingly interested in adopting third-party solutions from Korea and Taiwan. Thus, we can serve as a gateway for U.S. companies to mitigate their production costs. We are currently in discussions with several companies. In certain sectors, original equipment manufacturers have deemed equipment manufactured 20-25 years ago as obsolete. However, major U.S. fabs are eager to use these tools. We are actively working to provide solutions, whether through upgrades, downgrades, or maintenance of these tools.

U.S. fabs still possess dozens of such tools but struggle to find solutions within the U.S. mainland, which is why they have reached out to us. Therefore, we are in discussions to provide legacy equipment solutions to the U.S. market. By leveraging solutions primarily from Korea, Taiwan, and Singapore, we aim to contribute to the U.S. chip ecosystem. Through the integration of the global supply chain, I believe we can effectively reduce costs and foster a more efficient ecosystem.

The semiconductor industry experienced a downturn over the last two years, partly due to excess inventory and rising interest rates, making it challenging for companies to utilize CAPEX for production expansion. However, we've seen companies like Samsung and TSMC, among others, rebounding in fiscal 2023 and providing a positive outlook for the semiconductor industry over the next 12 to 18 months. What do you foresee as the short-term future of the semiconductor industry?

I believe we've already surpassed the bottom line. The lowest point was in the third quarter of last year, and we are now slowly recovering. We monitor global fab utilization daily, and the lowest point was less than 60%. Currently, the average global fab utilization stands at over 70%, and we anticipate it to exceed 80% in six months. Typically, fabs begin purchasing more equipment when utilization surpasses 80%.

If we look back two years ago, it marked the peak of the market, with a global utilization rate of around 90%, one of the highest levels in semiconductor history. It then declined to under 60% last year but is now recovering rapidly. Such fluctuations are natural in this industry, which faces numerous challenges. However, we're observing promising signs, with fab utilization steadily increasing. Chip inventory levels, both in non-memory and memory chips, are also decreasing rapidly.

In summary, I believe we have a bright future for next year's business. It seems that next year will be another good year for the semiconductor industry.

When we examine the upturn in the semiconductor industry over the past year, many attribute it to what's often referred to as the AI boom. However, various other industries are also driving demand. Autonomous driving stands out as a significant force pushing semiconductor usage, and the trend towards increasingly miniaturized phones is also notable. In your view, what are the primary segments that will fuel the growth of the semiconductor industry?

Currently, the AI market is thriving. Six months ago, the SiC (Silicon Carbide) business experienced a surge, but following a decline in electric car sales, many expansion plans for SiC development slowed down. Nevertheless, we believe this trend will regain momentum. Presently, much of the spotlight is on technologies related to Nvidia, HBM (High Bandwidth Memory), and TSMC's 3D packaging, which are at the forefront of this market.

Additionally, other sectors like memory DRAM are rapidly catching up, driven by the increasing demand for DRAM and NAND. Moreover, inventory levels appear healthier compared to last year. Therefore, I anticipate that AI will lead the market for the next two years, followed closely by memory. Memory chips experienced a significant downturn, but such downturns often lead to swift recoveries, as is evident in the current quick rebound of memory chip sales.

Furthermore, sectors such as mobile phones, application processors (AP), and related technologies are also gaining momentum. Thus, while AI takes the lead this year, other areas like memory chips and mobile technologies are following suit. Overall, we have a very optimistic forecast for the next two years. However, it's worth noting that another downturn may occur thereafter.

In light of the positive and bullish cycle for the semiconductor industry, what opportunities do equipment manufacturers foresee, and personally, where do you anticipate the most significant growth in demand?

The legacy sector is somewhat lagging behind the advancements seen in other areas. Presently, companies at the forefront of advanced technology are reaping the benefits of this market surge, while the legacy market remains relatively sluggish. However, we are witnessing gradual improvement, and it's poised to catch up with the advanced market in the near future. Therefore, we anticipate that the market will significantly improve in about six months. It's akin to a domino effect, beginning with AI, followed by DRAM, and so forth. As such, we expect the next turn to be our turn.

Established in 2000, SurplusGLOBAL offers a global platform for legacy semiconductor equipment and parts through collaborations with IDM, Foundry, OSAT, and equipment manufacturers. SurplusGLOBAL has provided services to over 6000 customers across a portfolio of more than 370 equipment suppliers, positioning itself as a leading global marketplace. Could you provide an overview of the company's history? Could you define SurplusGLOBAL in the world of legacy suppliers?

Throughout our history spanning 24 years, SurplusGLOBAL has carved a niche for itself by addressing the needs of our customers and facilitating their growth. We specialize in resolving supply chain issues faced by our clients in the legacy semiconductor sector, encompassing equipment shortages, parts deficits, and service requirements. Through global integration efforts, we systematically address these challenges.

Initially, our focus was primarily on equipment trading and repair services. However, recognizing evolving market demands, we are expanding our business scope. On the equipment side, we are venturing into equipment manufacturing and refurbishment segments. Regarding parts, while we previously offered repair services, we are now venturing into parts distribution to cater to the significant demand for obsolete legacy parts. Additionally, we will provide certain obsolete parts where market availability is scarce. These strategic expansions align with our commitment to meeting our customers' evolving needs.

I am particularly optimistic about SurplusGLOBAL’s future prospects due to our ability to address a wide array of customer challenges and provide comprehensive solutions in the market. The feedback from our customers regarding these future business plans has been overwhelmingly positive. While the semiconductor market exhibits localized dynamics in countries like Korea, Japan, the U.S., Taiwan, and China, we adhere strictly to U.S. export control compliance. Nevertheless, we leverage our global network to integrate resources and meet customer demands efficiently.

What sets us apart in this market is our unique position. Despite not being deeply entrenched in technology, we boast a robust global network. Thus, when customers encounter challenges, we leverage resources from Korea, Japan, or the U.S. to address their needs promptly and effectively.

There are over 1000 refurbishment companies worldwide, often operating on a localized scale. SurplusGLOBAL seems to be quite different. What are the key advantages of your total one-stop solution compared to your competitors? What sets you apart and adds value for your customers?

When SurplusGLOBAL was established, the market was largely dominated by industry giants like Sumitomo Mitsui Finance and Leasing (SMFL), Hitachi Capital (currently MITSUBISHI HC Capital), and GE Capital, primarily due to the substantial capital required for this business. Traditionally, banks were hesitant to extend loans to equipment companies like SurplusGLOBAL, focusing instead on real estate ventures. As a result, we had to continuously bolster our capital reserves.

However, these global behemoths, including GE Capital, which once led the U.S. market, gradually withdrew from this sector. While they possessed immense capital and boasted an impeccable reputation and global network, their service offerings were limited. They lacked the agility to provide customized solutions, particularly in technical upgrades, due to regulatory constraints and legal risks. Despite their financial prowess, their service scope remained narrow.

Recognizing this gap in the market, we capitalized on our flexibility. Unlike financial institutions bound by regulatory constraints, we could offer tailored solutions to meet our customers' unique needs. SurplusGLOBAL initially began as a B2B e-commerce marketplace in 2000, a venture that faced challenges and setbacks. Despite encountering significant losses during the dotcom bubble burst, we persevered, driven by the belief in our ability to adapt and innovate.

Following a period of reevaluation, we refocused our efforts on a specific industry: semiconductors. The semiconductor sector presented significant growth opportunities, particularly in Korea, where we observed an annual growth rate of 15% in 2002. While our initial annual sales were modest at $2 million, we identified an opportunity to carve our niche within the semiconductor industry.

Unlike our Korean competitors, who often specialized in narrow equipment and customer portfolios, we adopted a diversified approach. While they excelled in specific niches, we recognized the advantages of offering a broader range of equipment and catering to a wider customer base. This strategic decision allowed us to balance specialization with versatility, enhancing our competitive edge.

SurplusGLOBAL’s 2030 Big Cluster Project is a new facilities with the aim of expanding and establishing a more comprehensive one-stop solution for your customers, with R&D, warehouses, and plans to host over 100 companies. How will this facility impact your future strategy, and how will it support your growth as a one-stop solution provider?

Customers typically seek integrated solutions when making purchases. There are various options available, such as purchasing parts alone or with additional warranty services for three or six months, necessitating the inclusion of various service offerings. Some customers may only require services as they already possess inventories and only need parts repaired. We understand that achieving an integrated solution solely within our capabilities is impractical. Therefore, we rely on partnerships and collaboration with key industry players to meet diverse customer needs.

In this market, we cater to OEMs and refurbishers, with 30% of our sales attributed to major OEMs, who procure significant equipment from us. Interestingly, as an example, the parts we sell to ASML are originally manufactured by them. However, we secure and provide old equipment and parts, which are then refurbished and resold to ASML for distribution to end users. Through this collaboration, both companies combine their capabilities to deliver comprehensive solutions to end users. Collaboration is particularly crucial in the legacy market, where different entities specialize in repairing specific components, such as small parts or RF generators.

Considering that a single piece of equipment may comprise up to 20,000 parts, delivering integrated solutions for each component necessitates close collaboration among industry players. Therefore, collaboration forms the backbone of our business, enabling us to provide comprehensive solutions to our customers.

You mentioned collaborating with OEMs not only to refurbish or reconfigure equipment but also as customers purchasing your refurbished equipment. Could you elaborate on this dual role relationship with OEMs?

Absolutely. OEMs indeed purchase secondary or used tools from us, which they then refurbish for resale.

Your sourcing capabilities seem to be a core capability in this process. Could you expand on the value you add to the process?

Yes, our sourcing capabilities are fundamental. Additionally, we often provide value-added technical services and solutions by adjusting configurations and supplying missing parts. We collaborate with OEMs for equipment de-installation, creating mutually beneficial partnerships.

How is your revenue structured from collaborations with OEMs, foundries, and other industry players? Can you outline your business structure?

Our revenue structure is diversified. Collaboration with OEMs and refurbishers each accounts for approximately 30-40%, with end-user sales making up 10-20%, and OSAT (Outsourced Semiconductor Assembly and Test) companies contributing around 10%. Occasionally, global foundries like TSMC or Samsung directly purchase equipment and may engage OEMs separately. Therefore, our major customers encompass end users, OEMs, refurbishers, and OSAT companies.

Today, we're seeing an increase in foundries being constructed as OSATs are gaining significance due to the growing complexity of packaging and the essential role chip integration plays in new technologies. How do you envision this structure evolving in the future, and what factors will drive its growth?

Over the past 25 years, we've witnessed the rise and fall of numerous electronic companies. One of the most promising areas is the 2.5D and 3D packaging industry. TSMC, for instance, has pioneered the Cowos process, a groundbreaking technology in the semiconductor sector. As a legacy equipment solution provider, our direct involvement with cutting-edge companies like Nvidia is limited, as Nvidia typically procures state-of-the-art equipment from TSMC. However, we have high expectations for the 3D packaging sector. Currently, packaging companies invest in expensive new equipment. However, we anticipate that 3D packaging technology will become ubiquitous across industries in the next 3 to 10 years.

Presently, TSMC dominates this market, with Samsung and other companies following suit. However, in the future, we foresee 3D packaging technology becoming widespread. OSAT companies, due to their smaller Average Selling Price (ASP) compared to front-end device manufacturers, may find it challenging to afford the hefty price tags of $6-8 million tools. Therefore, we believe OSATs will increasingly turn to secondary equipment purchases in the future. While OEMs thrive on selling high-value equipment, the OSAT market may not offer the same level of profitability, as it is less likely to serve as a cash cow for OEMs.

Returning to the cluster aspect, it seems you're broadening your reach. One objective appears to be offering integrated solutions to your clients. From your perspective, do you harbor ambitions of developing a real estate cluster to bring all these major players together? Do you perceive an opportunity in that domain, and are you actively pursuing it?

In fact, it's akin to a space sales business. In the semiconductor legacy supply chain, we're involved in selling parts, equipment, and services during shortages of equipment and parts. However, physical space is also integral. Particularly in the US, Europe, and Taiwan, there's a significant shortage of space. Real estate could potentially become another facet of our business. However, we're not aggressively pursuing real estate ventures. Rather, our focus lies in providing comprehensive solutions, akin to a business hub, to our customers. Hence, there’s the need for larger-sized buildings. I've engaged in discussions with government officials in Dresden and the US Department of Commerce to explore incentives like IRA and subsidies. Similarly, in Taiwan, we've explored various locations for potential real estate acquisitions.

The concept of a larger cluster holds promise for cost reduction. By centralizing operations, we can minimize building and maintenance expenses while offering a wider array of solutions to our customers in a single location. Currently, our building houses nearly 10 companies, including those on temporary leases, fostering collaboration. For instance, our sister company EQ Global, the world's largest RF generator repair company, operates within the same building. While we primarily sell RF generators as-is, we offer warranty-added services in collaboration with EQ Global, with whom we share close proximity, facilitating quick communication and collaboration.

Additionally, the Korean Semiconductor Academy, overseen by the Korean government, faced challenges in procuring expensive equipment for their education programs. Leveraging our inventory of 1500 tools, we provided dozens of tools to the academy free of charge. This enabled them to deliver highly effective training courses to young talents, enhancing student satisfaction by providing hands-on learning experiences. Such collaborations foster a synergy within our building, enabling us to offer more integrated services to customers based on secondary equipment and parts.

Besides the services you offer, you bolster your global sourcing capabilities with an online platform, implementing AI and big data to gain a deeper understanding of demand and business opportunities. For traders, accurately forecasting customer needs, industry trends, and determining which equipment to stock and store are vital. How do you anticipate this AI-based platform impacting your business and strategy?

Over the past 24 years, we've amassed a substantial amount of data. However, much of it remains unstructured and thus, unusable. With advancements in AI technology, particularly with ChatGPT and other AI engines, we're able to convert this unstructured data into valuable, structured insights. Following successful Proof of Concepts (POCs) with Amazon and other global solution providers, we're confident that AI will enable us to offer more customized and personalized solutions to our customers. This marks a significant improvement for SurplusGLOBAL’s future prospects. However, we recognize that this journey will be lengthy. Streamlining data remains a challenge, primarily reliant on manual processes. Bottlenecks, particularly those related to unstructured data, have been a point of contention. Nonetheless, we're optimistic that AI technology holds the key to addressing many of these bottlenecks in the future. We're eagerly anticipating the possibilities AI will unlock, although we acknowledge the considerable investment required for its development.

You've mentioned that one of your goals is to transform SurplusGLOBAL into a multi-billion-dollar company. Could you elaborate on your strategy for the future?

Talent acquisition is paramount. This Wednesday, we're conducting interviews with candidates from Taiwan and Germany. We recognize the importance of global talent. As an SME in Korea, developing global networks poses a significant challenge. Talent acquisition remains our biggest hurdle, considering SurplusGLOBAL's aspirations.

I've always contemplated my retirement, a plan I've been laying since two decades ago. The company's value transcends monetary considerations; it's akin to a masterpiece to me. Personal wealth isn't a primary motivator. My pursuit of lofty ambitions for the company stems from a desire to see it achieve remarkable success and serve as a model within the industry. Numerous US, Korean, and Chinese companies have visited us to benchmark our operations, with over 30 companies even replicating our building. We've already established ourselves as a premier business model in this niche market, a contribution I'm immensely proud of.

We're continually developing new customer solutions on a global scale. While competitors may emulate our approach, we aim to offer a more expansive suite of solutions worldwide, positioning us as a highly esteemed company. Sometimes, our industry isn't given the recognition it deserves. I firmly believe we're making a significant impact on the world. Recently, we coined a new catchphrase, "we save the world." By providing legacy equipment and parts, we contribute to a valuable business segment. Each year, over $100 billion is spent on semiconductor equipment and parts, yet recycling efforts remain lacking. Our role in recycling these materials is crucial. Additionally, we're committed to reducing carbon emissions, although quantifying this reduction poses challenges. Nevertheless, we're working on methodologies to calculate carbon reduction and aim to offer carbon credits to our customers in the future. This endeavor, I believe, is incredibly valuable.

It's intriguing how you're developing a cluster while also maintaining local presences in the U.S., Taiwan, China, and potentially Europe. How do these localized offices collaborate, and what specific services do these regions require?

Our business model distinguishes itself from financial companies and online brokers by adopting a hybrid approach, incorporating elements of both online and offline operations. Presently, we're investing several billion dollars to refine our online marketplace, recognizing the importance of digital presence. However, we also acknowledge the significance of physical presence in our operations. Our customers across Taiwan, China, the USA, Japan, Singapore, and Europe prefer tangible interactions over virtual displays. To provide sophisticated solutions to our end-user and corporate clients, physical presence is imperative. Consequently, we're gradually establishing physical offices in strategic locations. Europe and the USA are top priorities due to their substantial shortages in equipment, parts, and services. Companies in these regions are increasingly seeking third-party solutions to reduce capital expenditure, presenting a significant market opportunity for us. Healthy competition is essential for a vibrant market ecosystem. By positioning ourselves as both competitors and partners to OEMs, we foster a dynamic environment where cooperation and competition coexist harmoniously. This balanced approach benefits end consumers, ensuring a diverse and competitive market landscape.

You're moving towards expanding your services to become an integrated solution provider while also fostering a cluster of legacy projects for your company. If we were to interview you again in 10 years, what personal objectives would you like to achieve as the leader of SurplusGLOBAL?

One of our significant challenges lies in competing with Chinese companies, particularly in advanced sectors. As a Korean company, we must strictly adhere to U.S. regulations to sustain our export operations. Looking ahead 10 years, it's uncertain whether this competition will intensify or diminish, but I anticipate it could escalate in advanced sectors. However, in the legacy domain, predicting market growth or contraction is challenging. Nevertheless, I believe it's likely to expand, presenting opportunities for us.

We have a significant opportunity ahead because SurplusGLOBAL is the only entity attempting to integrate global markets in the legacy sector. Pursuing our mission for the legacy platform comes with numerous challenges. Despite occasional doubts, I'm committed to persevering because I firmly believe it's the right direction. I don't aspire to be remembered as someone who pursued stability; instead, I aim to keep challenging ourselves to push boundaries and achieve greater heights.

For more details, explore their website at https://www.surplusglobal.com/about-surplus-global/