re: Grove continued to defend the need for semi capex spending
In business, there are many variables that have a consistent pattern of tracking together. When I notice that those variables are not tracking, then I try to figure out which variable is out of line. That is, I find the inherent contradictions in a situation, the tensions which must be resolved. In this case, you have two variables: semi-equip capex, and the semi supply/demand balance. The consistent pattern is: when supply/demand shifts to excess supply, then capex goes down. Both logic and experience bear this out. Today, we have the situation where Intel is saying: "there is excess supply, and we expect that to continue for the next 6 months (and we have zero visibility beyond that), but we are going to maintain high capex budgets anyway." This is like in the last downturn, when the memory chip-makers continued to add capacity, in the face of ASPs so low that noone was making money. It can't last. Notice, also, that Intel's largest market is still CPUs for PCs (in spite of strenous efforts to diversify), and that market is becoming a commodity market. So, Intel is faced with the same trade-off between margins and market share that Micron faces. The contradiction, the logical discontinuity, can be resolved in only two ways: either demand increases more than expected (to match the increasing supply), or........capex budgets have to come down. My bet is that capex comes down. And, if Intel does spend what they say they are in 2001 on capex, then the problem just gets worse: inventories, capacity utilization, margins, etc., will all go the wrong way, as long as capacity is added in the current market environment. |
