Lead Manager

SECTION 3
BUSINESS OVERVIEW
BABCOCK & BROWN PROSPECTUS
Electronics: Babcock & Brown Electronics Management
BBEM operates in the global semiconductor manufacturing equipment market. It targets the following activities:
• Contractual remarketing and leasing programs with Original Equipment Manufacturers to deliver both
leasing and equipment remarketing products
• Private label operating lease programs established for financial investors including banks and third-party
leasing companies to leverage BBEM’s industry and equipment knowledge
• Speculative buy/sell trading in used semiconductor manufacturing equipment
• Residual value insurance products or forward acquisition contracts for financial investors and other funding
sources to monetise equipment value into the lease contract
Babcock & Brown believes these four business segments are complementary and believes these segments will
create a sustainable business model over the long term, in which BBEM shifts its product emphasis and customer
targets as the semiconductor industry transitions from contractionary to expansionary cycles.
Babcock & Brown believes creating operating-lease products and managing a portfolio of such assets in the
semiconductor industry is complex. Although most semiconductor manufacturing equipment has an estimated
useful life of approximately 12-15 years, during its lifecycle the equipment will typically cascade to several
different types of end-users and different product applications.This is driven by the continuous evolution of
semiconductor manufacturing technology which results in a particular semiconductor moving from leading edge
(e.g. microprocessor and DRAM), to current production (e.g. medical and automotive) to trailing edge (e.g. home
electronics) over the course of its lifecycle. As a given semiconductor technology migrates down the technology
spectrum the number of end-user customers for the manufacturing equipment related to that technology
dramatically increases, reflecting the pervasiveness of semiconductor content in electronic devices today.
Remarketing and managing residual risk for such equipment thus requires deep industry knowledge and
relationships across a range of end-user categories since the potential end-user market will most likely change
over the duration of the lease.
BBEM endeavours to distinguish itself through technical experience and industry knowledge developed over the
management team’s combined average experience of over 20 years in the market.The team’s goal is to develop
products that are consistent with a client’s technology “roadmap” and factory utilisation requirements, which
Babcock & Brown believes will provide a competitive advantage over those industry participants that offer
financing solutions without addressing their client’s technology migration and management requirements.
BBEM’s focus to date has been on equipment trading, seeking to capitalise upon the depressed state of the
semiconductor equipment market in 2002 and 2003. However, as market conditions improved in 2004, BBEM’s
goal is to refocus part of its attention on working to build up an operating lease portfolio.
BBEM’s operations are based in the US and Japan and it sources assets throughout the world. BBEM has a global
network of clients, investors and operating partners.
Semiconductor manufacturing equipment leasing industry
The demand for semiconductor manufacturing equipment is highly cyclical but has demonstrated consistent
growth over the long term as illustrated in the chart below.
SEMICONDUCTOR EQUIPMENT MARKET - CONSISTENT LONG–TERM GROWTH
(US$) billions
50
40
30
20
10
0
1.2 1.5 1.9 1.8 2.0 2.5
3.6 3.0 3.7
4.7 7.9
8.9 8.3 8.6 7.9 10.3 14.5
27.6 27.0 25.6
23.9
21.3
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04E 05E 06E 07E 08E 09E
Source: Babcock & Brown
47.1
29.0
20.7 22.8 33.7 35.9 29.9 29.0
36.7 38.4
71