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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 142.62+2.2%Nov 21 9:30 AM EST
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To: Jacob Snyder who wrote (8898)10/23/2000 5:41:22 PM
From: John Cuthbertson  Read Replies (2) of 10921
 
"re: I think the players get a little better with each cycle"

Jacob,

I'd take issue with one of your points of fact:

4. the total bookings, at any point in time, represent the semi industry's consensus on what demand for chips will be in 24-36 months. Or, to be more exact, it represents the semi industry's best guess about what the demand/supply balance will be by the time they are using the equipment they are currently ordering.

If only that were so, I think the industry would have been less cyclical! In fact, I think the aggregate orders have not represented any such "consensus" or the results of the companies' estimates about how much demand the industry as a whole would see. Instead it has been the result of each company's plans for how much they individually wanted to make and sell, almost disregarding the realities of the market as a whole. This was especially true for the DRAM makers. Every company planned to increase market share, but unfortunately the sum of market shares failed to expand beyond 100%!

I think that one factor that may make for less extreme cycles in the future is the humbling of the Korean chaebols in the 1998 crisis. They are no longer going to have access to loans that they will never be able to repay to finance the capacity expansions they needed to buy market share by selling chips at a loss. This should make for less overbuilding. One danger to watch for is that the Taiwanese foundries could start going down the same road as the Korean DRAM producers, creating the same kind of problems.

==John C.
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