Semiconductor and Semi-Equipment Analysts - Their Calls Message Board

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Technology Stocks : Semiconductor and Semi-Equipment Analysts - Their Calls

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To: hhieslmair who wrote (68)	7/31/2000 3:54:39 PM
From: Nevin S.	Read Replies (1) of 195

hhieslmair, very cogent analysis of the semi conductor market. Two things I'd like to add. First, with many companies going fabless, this decreases the tendency for overbuilding of fab capacity. It should be self evident, but for the uninitiated, under the old model every chip company (and their brother) set up chip manufacturing facilities because they wanted to control production of their products. As fabs became more expensive, a lot of specialty firms went fabless as they realized that they could not keep up with other larger firms on the process side of the business and the capital expenditures and obsolescence on the production side were killing them during industry downturns. Enter the contact manufacturing firms like Taiwan Semi and United Micro. Instead of 50 different chip design houses creating capacity for their respective products, now you have a handful of manufacturers that specialize in process and production. If one company loses business to a competitor, manufacturers adjust production schedules and slip in the competitors product or another company's chip where there is unused capacity. This is a much more efficient way of doing business for both designers as well as contract fabs. Instead of everybody trying to gauge chip demand, you have a few consolidators that see demand from many different points in the market and adjust accordingly. If the fabs overbuild, they could conceivably go to companies like MU and INTC and take on some production to fill fab space. The other point I'd like to make is that at least for the foreseeable future, none of this will matter. The reason: just as generals always fight the "last war" and inevitably make mistakes for looking backward not forward, Wall Street analysts, like SSB, will continue to think that semiconductor markets are cyclical and 99% correlated to the PC industry. Just my opinion on this but then I have little confidence in an industry that needs money moving from one segment to the next to make a buck for themselves. Wall Street can't stand a buy and hold strategy - there's no profit in that so they have to keep you and me chasing the next hot sector or the promise of one would be more like it.

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