A very astute investor alerted me to 1999 and 2000 LEAPS. I am investing in that direction as we speak. Your comment is also very astute relative to an impending shortage.
WFR is a commodity but so is DPMI, MASK, and PLAB. The reticle makers provide a specialized commodity which is nothing more that a chrome photographic image on a quartz plate. In all cases, the cost of entry in this commodity business is extremely prohibitive and runs in to the hundreds of millions of dollars.
When new silicon capacity is required, it comes on line in huge increments. You really do not just increase capacity in units of 10%. You make a major investment and bring on board a great deal of expanded capacity. Once this is done, a glut arises and you must "suffer" as a supplier while waiting for the new supply/demand situation to come back into quasi-equilibrium. A great deal of silicon producing capacity has been brought on line but the new wafer fabs have lagged behind the initial expectations. These fabs are now coming on line or being completed with new fabs now on the books to be built. this is usually an 18-24 month process. Couple this with the recent DRAM announcements concerning increasing output for these devices and you see the beginnings of the next round of shortages. We are coming out of the IC downturn which affected WFR on two fronts. The new fabs did not come on line on schedule and the older fabs cut back on production. Latest word on the street is that the average IC fab is running at roughly 87% capacity and that most new projects have been taken off hold. Even MU, who mothballed their new Lehi UT fab and said they may bring it on line next summer, may have a change of heart, given the recent DRAM ramp up. We are about 6 months away from full IC capacity and ramp up of new IC factories. WFR is in the process of getting a double good guy. First, the abundant unused capacity will be put into operation thereby lowering unit cost relative to operations and depreciation thereby improving profit margins. Second, the new Fabs coming on line will utilize the 200mm and 300mm capabilities of these new expansions.
Funny thing is, I think that within 24 months we will have a severe wafer shortage again. If I weren't so conservative<GG>, I would state that wafer allocations will become the norm by January 1999. Therefore, the 1999 and 2000 LEAPS look real attractive.
Andrew
The same has held true for the mask/reticle makers. They went through an expansion not too long ago and created more capacity than there was demand. Now both demand and new technology requirements (PSMs) have moved the pendulum towards equilibrium or slightly to the demand side. While capacity is still there, most of the mask makers are looking to the next round of expansion since demand is up and capacity to meet the demand is shrinking to a nervous level. Remember that it takes time to expand in this sector also since the equipment has 12-18 month leadtimes. I mention this since we are, AFTER ALL, on the UTEK thread and the Ultrabeam could be a player here.
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