I apologize for the length, but Larry wanted comments. Here they are:
< "Micron intends to retain its position as lowest-cost producer in the industry by
continuing to use leading edge processes and tools," Appleton said in a
wide-ranging interview in his office here. Nearly all of next year's capital spending
will go to add the latest state-of-the-art equipment to existing fab lines in Boise. The
whole idea, Appleton said, is to keep increasing productivity and cutting costs.
That's the strategy, he added, that has propelled Micron into one of the top three
DRAM producers in the world -- perhaps even No. 1. >
Old news.
< Micron has doubled its DRAM output at Boise this year through die shrinks
achieved by converting all production lines to 0.35-micron processing. The firm
now expects to move completely to 0.30-micron chip designs by the end of the
year, which will generate 50% more dice per wafer. >
This may lower costs by as much as 30%, assuming they can make the transition in a timely manner.
< Running its lines with leading-edge processes and tools has allowed Micron to cut
costs and increase profit margins up to 49% of sales -- all at a time when the
DRAM industry has been running in a severe downturn, Appleton said. Micron, he
added, "is the only manufacturer making a profit in DRAMs at this time." >
Profit margins are not 49% of sales. MU reported gross margins at 49% of sales, but actual profit margins were much lower. They are continuing to fool people by leaving out the overhead required to run the business. I wish I could just leave out my costs such as rent, food, electricity, etc. Wouldn't life be fun!
< The 1998 capital spending plan doesn't include equipping Micron's large fab shell at
Lehi, Utah, with front-end equipment. As long as Micron can increase output
economically through die shrinks at the present Boise fabs, "there's no need to
launch a new fab at Lehi at this time," the Micron chieftain asserted. "We will build
out Lehi when it becomes cost-effective to expand there - not one moment before,"
Appleton said. >
Back to the idea that MU can time everything perfectly. Appleton's got quite the ego if he thinks he can do everything right. What about the time he built a $650 million fab and couldn't follow through because of industry overcapacity?
< But next year Micron will open up its first production operation at Lehi, a second
IC test facility to supplement the saturated Boise operation.
Next year's big expansion shouldn't be a stretch for Micron. The DRAM supplier is
in a far better financial position to fund the big increase in capital investment,
Appleton said, than many competitors plagued with low profits. "We try to pay for
all equipment purchases out of operations. Our present earnings should allow us to
continue this policy," he noted. >
They can try to pay for purchases from operations, but if the cash flow is negative as it has been when all costs are accounted for, they are going to have a hard time doing it.
< But just in case, Micron has $1 billion in cash, a $500 million additional line of
credit, and $500 million from a 1997 convertible bond issue. All of it is available. >
MU had $1 billion in cash, and etc. according to Appleton at the time of his recent interview. How much do they have now? What are their current liabilities? How much of the cash is actually MUEI's but shows up on MU's books due to the subsidiary status of MUEI?
< Micron is now positioned to add quarter-micron, deep-UV lithography systems
whenever they can cut the cost per bit below the level achieved by present
production equipment, Appleton said. The chip maker has deep-UV steppers from
ASM Lithography already running in its development fab, which is also being used
for the limited production of critical wafer layers.
"We will be moving to install quarter-micron deep-UV steppers in production fabs
in the next two years," he predicted. Almost all of the $150 million order placed this
summer with ASML will go for deep-UV systems. >
Good for them. Needs to be done to have any chance of remaining competitive in the future. They should try to complete it by mid-1998, though, to compete with those who will have .25 um lines by the end of this year.
< Surprisingly, Appleton said he "is confident that we can extend present I-line
steppers to quarter-micron processing." He declined to elaborate. No other DRAM
maker is known to be attempting to push I-line to the 0.25-micron level. >
MU is going where no-one has gone before. Stretching old equipment beyond its' limits tends to cause reliability problems, at best. Why would they do this? Because they can't afford to do it right as others have done.
< Despite its success with current DRAM production, Micron has no intentions of
letting up on other DRAM producers that it believes are dumping chips. Selling
below cost is clearly dumping, the Micron CEO maintained, an action he refuses to
excuse because of the global DRAM market crash. "After all," he said, "Micron is
making DRAMs profitably." >
Sure they are. At least they have deluded themselves and some analysts into thinking they are making a profit. Where is all the cash, then? It stinks that they would continue this scam claiming everyone else is dumping chips if MU claims to be able to make a profit. How can MU know other companies' cost structure?
< Appleton said the U.S. Department of Commerce should continue its present
DRAM dumping investigation of the two South Korean suppliers, Hyundai
Electronics Co. and LG Semicon. He said all the attention on DRAM dumping
cases "brings high visibility to the capacity expansion issue.
Foreign manufacturers," he said, "have a new awareness that they can't launch big
expansions without any relation to market conditions." The Micron CEO felt this
was a factor when South Korean and Japanese DRAM makers cut back
production and decreased capital spending in the current market slowdown. >
Why, then, should MU be able to expand their fabs to increase utilization and reduce cost/unit when they try to limit expansion of others due to fraudulent dumping claims?
--James |
