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Politics : Formerly About Applied Materials
AMAT 307.20+2.0%3:59 PM EST
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To: michael97123 who wrote (58899)1/17/2002 9:50:02 AM
From: Katherine Derbyshire  Read Replies (2) of 70976
 
As a rule of thumb, most industry experts believe that "reasonable" capex levels are about 11% of semiconductor sales. Less than that creates a serious risk that companies will fall behind their competitors and behind long term IC demand. More than that creates a serious risk of a capacity glut, with all the problems it brings.

In 2000, industrywide capex was about 15% of semiconductor sales, with some individual manufacturers investing 100% or more of their sales in new equipment. In 2001, capex was still around 14% of sales. There's still a lot of idle chipmaking capacity out there, particularly in the foundry and DRAM spaces. Until there's a sustained recovery in IC *prices*, I wouldn't expect to see much growth in capex.

Now, there's also the technological obsolescence question: at what point does existing capacity have to be replaced because it's either uneconomical or can't deliver high performance. But I think that's only a strong consideration in segments with reasonable sales and profit margins. If I were one of Hynix's creditors, for example, I wouldn't be looking to loan them *more* money on top of the $6 billion they've already defaulted on.

Katherine
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