Applied Materials No-Politics Thread (AMAT) Message Board

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Technology Stocks : Applied Materials No-Politics Thread (AMAT)

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Dec 19 9:30 AM EST

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To: Cary Salsberg who wrote (9939)	5/21/2004 12:46:21 PM
From: Sam Citron	Read Replies (2) of 25522

I tend to agree with Richard that we cannot expect "prudent behavior" to eliminate the capacity driven cycles in the semi-equip industry. Capacity planning is an art rather than a science, and there are many game-theoretic aspects where competitor #1's action is determined in large part by what competitor #2 does or is expected to do. Fear of preemption, for example, is perfectly prudent behavior, yet it may ultimately cause excess in capacity. The following paper suggests that cycles may at best be managed, but probably not eliminated: investmentscience.com I therefore find that your "no cycle scenario two" is highly unlikely. It appears more likely to me that the biggest boom-bust cycle in the history of the industry has simply caused certain temporary changes in behavior and a more cautious approach among semi CEOs toward adding capacity at this time. The memory of the bust and the lessons learned may last for a while, and firms will incorporate dynamic competitive elements to improve their capacity modelling, but it would be extremely premature to assume that semi-equip cyclicality has been eliminated. How would you weigh the probabilities of the two scenarios you have outlined? Can you think of other scenarios that a semi-equip investor might want to ponder? Sam

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