One of the most well known local Taiwan providers of semiconductor equipment, Hermes Epitek believes that extending its business presence is a natural extension of its long-term practice of developing its technology and industry expertise, starting from its agency business decades ago.
With the local Taiwan semiconductor industry again abuzz with discussions about equipment localization and leading international vendors expressing an openness to partner with local companies, the SEMICON Taiwan time frame is a good opportunity to discuss such issues with Archive Hwang, chairman and CEO of Hermes Epitek.
Q: Please tell about some of Hermes' achievements in the semiconductor equipment market? Also, what would your customers say about Hermes' equipment?
A: The first equipment that we introduced was e-beam inspection equipment and we have secured orders from leading foundries for this product. Of course, they may also source e-beam equipment from other vendors but we think we have now have a sound foundation in the foundry sector. In addition to customers in the Taiwan market, we have shipped equipment to China, Japan and Korea – the key semiconductor production hubs in Asia.
We are also have a partnership with a leading – but low profile – front-end semiconductor company for our e-beam inspection equipment. This vendor regards us as its sole partner for its future inspection development demand.
After establishing ourselves with our e-beam product, we also launched an implanter product line. I must stress that the product is a low-polluting, single-lens device that can fit customers requirements for every process generation. Currently we have two customers in this segment for front-end production, with both validating our equipment.
Q: Why did Hermes decided to tap into the inspection and implanter segments, two segments that are highly dominated by international players?
A: We have been in the market for over three decades. We started by playing the role of agent/distributor, and we were able to receive great insight into the industry from our customers. So, it is very natural for us to take the steps forward to selling our own products.
In addition to our personal background in the semiconductor industry, our close business ally, Japan-based Tokyo Electron Limited (TEL), also helped guide our initial direction in semiconductor equipment deployment. When we developed our own equipment, of course our plan was to go in a direction that complemented the product lines of our partners. In other words, we went in a direction that would not create any conflict with our relationship with TEL.
The inspection and implanter segments are two product segments that fit into this strategy. These products would not create any conflict or potential competition with TEL. They also helped to broaden and strengthen TEL's existing product lineup, creating a synergy with our businesses.
When we first tapped the semiconductor equipment industry, we went through many ideas concerning our business direction and eventually concluded that there was a role for such a newcomer. After all, not all equipment must target leading-edge technology and be designed with the goal of fundamentally changing the entire industry in terms of technology advancement.
After surveying the market, we found that products such as scanner/stepper and lithography related tools would have been difficult for us to deploy and make a noticeable dent in the market in a short period of time. But for some equipment, the market is already mature and room for further technology advancement is limited, so there are opportunities for new entrants that can be cost competitive.
Q: Currently in Taiwan, the term "localization" is popular in the semiconductor equipment sector. Currently in the local Taiwan market, most Taiwan players contribute to localization mostly by component production only. While, in contrast, Hermes is producing entire products. Can you comment on the difference?
A: My initial thought is that industry players believe that, regardless of the origin of design, any equipment produced in Taiwan can be defined as "Made in Taiwan." This may be a direction that many industry players, including government officials, take when they talk about equipment localization.
I personally would not try to absolutely define "equipment localization", but I do think there is a watershed test for Yes and No – i.e. the origin of the company. When you speak about TEL, most people will immediately think of it as a Japan-based company, or a global company. Similar recognition is there for companies such as Applied Materials and ASML – no one will classify these companies as Taiwan companies.
So, when a Taiwan company has its own equipment, regardless of the design or production location, that equipment is "Made in Taiwan". Any company that is Taiwan-based and designs and develops equipment on its own, while having the ability to handle related sales and marketing tasks by establishing branches in major sales regions to serve those domestic customers, can be said to have achieved localized production, no matter where the product is produced or assembled.
Of course, there are some industry players in Taiwan that think that any company that moves its production or assembly base to Taiwan also produced localized equipment. I think that over the past several decades, it is undoubtedly true that Taiwan IT industry players were trained via this business model.
However, having production done in this pattern implies that Taiwan cannot plant deep roots with out technology development. In the semiconductor industry, I think that this method is not conducive to bringing the region up the value chain in terms of technology or sales.
One point that I would like to add is that some localized equipment may not be 100% designed or produced in Taiwan, as some parts of the production/design are done in another region due to that part delivering an increased level of benefit. I believe this may also still be classified as localization. Under the competitive environment we see in the semiconductor industry, I think it is impractical to have everything done here in Taiwan. So, in other words, any company that has the power to provide quality integration of the resources available to it, is a company can compete better in the industry.
Q: Does Hermes encounter any barriers to selling its own-brand products? If yes, how does Hermes overcome such challenges?
A: The most difficult issue is how to identify suitable "talent". We have a clear business direction already, so the problem is how to recruit professionals that share the same goal and vision that we do. We do not confine ourselves to being an Asian company when we look for talent. If we limit our definition of our company's nature, this will limit our vision and scope also.
Of course some customers can hardly understand how Hermes has the ability to make the products we offer. These customers trust neither us nor our products. When encountering customers of this type, the results do not rest on our marketing skills because their minds are already made up. However, on the other hand, our partner TEL is very keen on promoting our products to its customers.
We regard IP as the origin of life in the semiconductor industry, so it is not an issue for us to deploy in the semiconductor equipment industry at all. We do value our patents very much. We may not have been that aggressive on patent applications in the past but we have educated our employees about the importance of patents, and of developing a global patent library. The key difference between us and some other local companies is that we already are aware that we must establish IP possession before a product is introduced.
Q: Many companies are concerned about the possible change in chemistry/relationship that may occur with an original business partners once the agent/distributor begins developing its own equipment. What about Hermes? How did your relationship changes with TEL?
A: First, undoubtedly, our products cannot have any conflict with our vendor. If our products somehow conflicted with their products, it would hint that much of our technology is derived from them in an underhanded fashion. This is fundamentally wrong and in conflict with our business philosophy. We respect other vendors' IP and our established relationship with vendors is extremely important to us. We do not make any products that may be in conflict with our partners.
Q: What is the government's role in helping equipment localization?
A: We also seek supports from government agencies but it seems to be that local Taiwan government agencies or institutes cannot keep up with our development progression. Also, although I appreciate how much the government vows to support equipment localization, it is not necessary to see the government play a heavy role in helping equipment localization, as it involves many issues. Some industry players may challenge fairness, and some may question the necessity of budgeting that much for a specific industry. If government support ends up making for a noisy market, I would rather say, "No, thank you".
From Hermes' perspective, we sometimes find it difficult to "ask" anything from the government. If we act like a "cry baby", yelling for this and that, it somehow implies that you cannot achieve anything on your own. What we do is to create our own path.
Of course it would be good to have a government subsidy. But if equipment makers are working here on developing tools for the future, the required investment amounts would be considerable. And since the benefits or future returns are uncertain, it is not suitable for the government to budget too much to aid local players.
Q: What do you think about the industry outlook for 2008?
A: Cyclical ups and downs are normal. I have to admit that we are now in an industry trough, but that also implies a rebound is coming. But when will this rebound starts emerging, I personally think economists may give you a more precise answer than I can.
This interview was translated from Chinese.
Archie Hwang, CEO and chairman at Hermes-Epitek
Photo: Claire Sung, DIGITIMES, September 2008
Article translated by Esther Lam
