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Technology Stocks : KEMET Corp.
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To: Ron Harvey who wrote (416)8/1/2000 1:50:47 PM
From: Paul Senior  Read Replies (3) of 906
 
Ron Harvey: I believe (but I'm no purchasing expert) that these type long-term deals are common in the components business for components where there's a shortage.

I look at it this way. No buyer would want to commit to both a high price and a high fixed volume for a component that could, in future, be in surplus. Commitments to a price (high future price) assure KEM that KEM will get top dollar for their caps even if the spot price is much lower. And for the buyer, they have to pay this 'top dollar' but if they don't need so much of the product, they don't need to take it. (The contract likely - imo and without having any facts- entails a minimum quantity that that the buyer must take.) They - the buyers - aren't happy they have to pay more than the then current price - but that is the cost of assuring themselves now future delivery.

This assumes the future demand is down from when the contract was entered into and also the capacitor price is down too. Of course, if industry demand and prices are up and the contract buyer takes all of the caps allowed by the contract, the buyer makes out great, the KEM purchasing agent sighs and says to himself/herself I shouda been tougher, but --- IMHO --- if we are in that situation - demand high & prices high - the stock price of KEM will be lots higher than now too. I will like that (assuming I can hold on until then).

Paul Senior
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