I've been thinking of it as a commodity oversupply problem, as the DRAM makers are seeing now. When supply expands faster than demand does, prices drop quickly. In effect, a company gets punished for executing well.
We're seeing the same thing with CPU's - the processing power of CPU's has developed much faster than Moore's Law predicts in recent years, primarily because of higher clock speeds. Software development hasn't kept pace. When Intel took a huge cut from the price of their high-end CPU's, I saw that they're trying to dump rapidly depreciating inventory - a commodity-style supply/demand imbalance.
In the SCE market, the die shrinks and wafer area growth are both happening at the same time. The chips/wafer ratio (or machine throughput) is growing comparatively faster than demand (especially in this economy). You can get 3x to 4x the number of chips per process cycle out of a newer machine. (Granted, that can reduce your overhead a bit through economies of scale, but still ...)
Combine all of the above, and I just don't see a *current* market for capital equipment that allows greater throughput, when the profitability of the chipmakers is already impacted by overproduction and excess capacity problems.
Now, some disclaimers. This is a static analysis of a notoriously dynamic (cyclical) industry. This is where the target sits today; now we have to figure out where it's moving, so we can figure how to lead it.
First, the lead time for SCE orders is a high fraction of recent cycles. Chip companies have to anticipate their future needs at a time when they are least able to pay for them. (i. e. Now.) Prediction in a chaotic environment is almost hope and guesswork. They compensate by multiple bookings and/or postponing deliveries, so Morgan's "all at once" comment is a solid, shrewd analysis of his customers' behavior.
Second, this presumes a fairly predictable smooth (linear or exponential) demand for chips and a highly variable supply. A discontinuous event could knock the current supply/demand relationship out of kilter quickly. (Possible discontinuities - WinXP? Wireless everything? Japanese earthquake? Bay Area earthquake? China invades Taiwan?)
I hope this gives you a look from my perspective - right now, it feels like the entire chip-and-related industry is pushing on a supply string when the change really needs to come on the demand end.
- Mitch |
