>>If DRAM prices continue to fall would not the manufactures say something like, "if
we upgrade our facilities we may still lose X millions of dollars, but if we don't
upgrade we will lose 10 x X millions of dollars"?<<
You're mistaking real losses and lost opportunities. If I sell a gadget for $9 and it costs me $10 to make, I lose $1 for every single one that goes out the door. That's real money.
Now, suppose I can spend, say $1 billion (also real money) in order to drop my cost to $8. I will then make $1/gadget, but will have to sell at least 1 *billion* of them (before the price drops again!) in order to earn back my investment. I think it's a safe bet, because I think I can drop my manufacturing costs faster than my competitors can.
But, I don't have $1 billion. So I have to go to my bankers. And they say, Katherine, 2 years ago we had this conversation, too. But your competitors were able to drop the manufacturing cost down to $8 then, while you were only able to drop yours to $10. So you *still* haven't paid back that last $1 billion you owe us, and the government and the IMF are screaming about how we never should have loaned it to you in the first place. And now you want another $1 billion?
Until the bankers actually write the check, *they* haven't lost a cent. They can make the loan to Uncle Sam (put the money in US Treasuries) instead if they want.
Until I actually accept the loan, I can fold my cards and walk away from the gadget business. Sure, I've thereby given up any chance of making money (lost opportunities) from gadgets. But I'm not going to lose any more *real* money that way, either. Plenty of companies have done precisely that in the last year, but not enough to drive the prices back up.
(To make my little scenario more realistic, cut the price of gadgets in half, double the cost of the factory (meaning breakeven point is more like 4 billion units), and realize that it will be 18 months before the cheaper gadgets start rolling off the line. During that time I still have to pay at least interest on the loan, and that's not going to be cheap because both I and my homeland have a credit rating of about ddd- thanks to the last time we went through all of this.)
Katherine |
