Nick: Keep in mind that costs consist of those that are fixed and
those that are variable. The fixed costs of a semi plant are huge,
while the cost of turning out one more chip, given that you already
have the plant up and running, are tiny. As long as a producer can
sell the marginal chip for more than the marginal cost, it makes
sense to do so, even if that extra profit, multiplied by the factory's
total capacity, is insufficient to cover the fixed costs as well.
That is how some industries continue with everyone losing money for a
while - because they would lose even more money if they idled their
plants, which wouldn't make the interest bill on the money they
borrowed to build their factories go away. That condition, however,
doesn't give anyone an incentive to build any more plants, so if all
competitors are looking at things from purely an economic view, and
demand for the product continues to rise, sooner or later demand will
soak up the extra supply and everyone will move back into the black.
The question in DRAM is whether there might be players who are
building plants for reasons of national prestige (the way every two
bit third world country had to have its own steel plant in the 1950's)
and whether some players are willing to lose big money for the next
few years, knocking out weak competitors, to be in a position to make
really big money in 2000+. |
