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Firm Lends Hand to Semiconductor Manufacturers

With costs to make computer chips escalating to the billions of dollars, finding a loan for the equipment used to make the components isn’t easy.

Most lenders shun the volatile and high risk semiconductor manufacturing industry, preferring staid collateral such as houses and land. Yet Global Electronics Solutions, a finance firm based in San Diego, specializes in this type of lending.

Part of General Electric Commercial Finance, GES provides leasing and financing on multimillion-dollar machines used to produce components that are contained in all manner of machinery and products.

“We help companies acquire the equipment they need, either by leasing it or financing it. We also help them in the life cycle of the ownership of the equipment, because equipment like this likely won’t stay in the same factory over its life,” said Roger Innes, GES president and chief executive officer.

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Specialized equipment such as the type used to create the latest chips has been rising in price as the components continue to shrink and become more powerful.

About 10 years ago, equipment used to make imprints on a circuit board may have sold for about $1 million. Today, comparable equipment used to make far more powerful and intricate circuit assemblies can cost about $42 million, Innes said.

“To build a new, state-of-the-art chip manufacturing plant could cost more than $3 billion,” he said.

Working with most of the top semiconductor manufacturers in the world, GES knows the industry and has carved out a name in arranging for complex financing deals, Innes said.

The company recently put together a $100 million contract for a production plant in Japan, making memory flash devices for a joint venture between AMD and Fujitsu called FASL.

Innes declined to reveal how many transactions the firm did or GES revenues. The maximum value of managed assets held by the company in the last three years was $1.7 billion, the company said.

“The transactions range from several million dollars to hundreds of millions,” Innes said.

Companies using GES services typically lease the equipment for a set term, allowing the capability of updating a plant with newer or different equipment as needed or the market dictates, he said.

“It’s not the ownership of the equipment that makes money. It’s the use of the equipment,” Innes said.

Older pieces of machinery are often recycled to other manufacturers, a process the company refers to as “remarketing.”

A common approach to selling the used equipment entails GES lining up a buyer while the machinery is still in operation, and if a deal is consummated, transporting it where the new buyers desire. Sometimes equipment may be refurbished or customized, but GES contracts out for this.

The company maintains a holding facility for used equipment in Santa Clara in Silicon Valley, which is staffed by 31 employees.

About 60 of GES’ 100 employees work in California, including about 30 at the GES headquarters in San Diego. The other employees work in offices in Europe, Taiwan, Singapore and Japan.

GE Commercial acquired GES, formerly called ComDisco, in 2002 for an undisclosed sum. Innes, 49, founded the firm in 1992 with two other partners after spending nearly his entire career in the leasing and financing industry.

Asked what the biggest upside to being part of GE, one of the world’s largest corporations, Innes said access to capital.

“They provide a tremendous source of capital to grow and we write some pretty big checks,” he said.

Locating the financing for expensive machinery used in making semiconductors is tough since so few entities are engaged in the business, said Clark Lemke, the chief financial officer for SMS Technologies Inc., a contract electronics manufacturer in Sorrento Mesa.

“It can be a very high-risk business,” he said.

One of the world’s largest equipment finance companies, Citi Capital, a unit of Citicorp, exited the industry soon after the high-tech downturn that began in 2000.

SMS used GE Capital, a separate unit from GES, to arrange a leasing contract for surface mount technology assembly lines in 2002 with the equipment manufacturer Siemens, Lemke said.

“Buying this equipment brand-new would have cost more than $2 million, but we were able to arrange a lease/purchase agreement over five years for $1.1 million,” he said.

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