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Technology Stocks : Cymer (CYMI)
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To: Gary Hoyer who wrote (7680)10/31/1997 8:26:00 PM
From: PAinvestor  Read Replies (1) of 25960
 
Gary & thread,

Indications are that semiconductor capex growth from the chip companies in Asia will be below their recent forecasts due to the poor state of the DRAM business. There should still be year-on-year growth but there will be a marked deceleration from previous growth levels.

Now, some may construe that this will be a negative for the equipment suppliers - it may well be for some of them. But there is plenty of evidence that despite slowing capex, the allocation by the Japanese, Koreans and Taiwanese to chip-shrink technology in their total capex will increase. This basically means that they are attempting to accelerate to 0.25 micron processes ahead of their rivals. It is a battle of attrition and the first ones there will be the longer term winners.

I have yet to see any analysis that researched (ie quantify) this point in detail. In fact the following point is the most important one to answer: is the move to 0.25micron technology and below accelerating or decelerating? We know that capex growth will slow but will the acceleration in procurement of shrink technology as a proportion of the total be enough to offset the deceleration in overall capex?

The chip makers have too much capacity for current demand levels. That is why chip prices are so low and they are losing money on their chip manufacturing operations. All the players in the market want to survive and they are confident that they will eventually make money again. Over the next 12-24 months it is unlikely that there will be a closing of the supply/demand gap, and therefore we will still be in a position of overcapacity for sometime to come. Therefore chip prices will remain low.

All the chip makers realize this and are trying to drastically reduce costs of production. An interesting point that I have been told is that all up, it actually costs more to slow down or stop a fab line than it does to keep it running at full capacity - regardless of pricing levels. So the only alternative is to reduce costs by shrinking the size of the chips on the wafers and therefore increasing the yield significantly. In addition these chips command more of a price premium than the previous generations - witness the price premuim on a Synchronous 64meg chip versus a standard version (some 5-10%). This can mean the difference between making or losing money. More chips per wafer means lower average cost and better chips mean higher selling prices.

It will be those manufacturers that will be able to shrink the most quickly and efficiently that will survive. This week's The Economist has an article on chip makers in Asia and the fact that the Korean manufacturers borrowed heavily to support their DRAM expansion and may meet trouble soon. The Japanese and Taiwanese have by comparison much deeper pockets. They all realize that this market is not going to turn around soon. They must invest in DUV to survive.

PAinvestor
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