There is something puzzling here. If, as is universally asserted,
chip prices, in particular memory prices, are down because of a
glut in supply, then the UNIT demand for wafers must be up (providing there was not a dramatic drop in the average silicon/chip ratio). If
MEMC experiences slowing UNIT sales, there are only two explanations. First, the chip companies run down their wafer inventory. Or second, they have cut down on chip production. In the first scenario, the
sales drop in MEMC is a one/two quarter hiccup, indeed, since lower memory prices presumably will increase demand, the rebound might be quite robust. The second scenario is possible, but would seem to conflict with the explanation for the memory price decline. In any case, it is hard to see how a producer of an input into a product whose price is declining can experience declining UNIT demand for any length of time. The only relevant issue would thus seem to be the stability of wafer prices. Yet, again, the story of the chip glut would suggest that pricing power for MEMC has improved rather than declined. It thus seems hard to make a convincing negative case on MEMC.
What am I missing? |
