Zeev,
I can see the short term problem. What I can't see is the long run
problem. Chip prices falling at above normal rates would suggest that there is not only excess capacity but excess supply. Lower prices however tend to stimulate demand, at least over the intermediate term, indeed, given that, as you say, the defense of market share by competitors reduces the likelyhood of a "co-ordinated" supply reduction in the commodity chip markets, this increase in demand as a response to lower prices would seem to be what eventually, maybe together with a shift in standards, will mitigate the supply glut.
Viewed in this light, the current reduction in production might simply
reflect inventory adjustment, going forward, a decline in the trend
UNIT demand for chips seems unlikely. As you point out, the concern for MEMC thus must be twofold: for revenues to hold up, the wafer/chip ratio must not fall to rapidly, and the pricing power must remain reasonable. You mention the capacity increase. But to the degree that the price decline in commodity chips indeed raises demand for them, the situation for MEMC and the other wafer producers could be argued to be better rather than worse in a scenario of more rapidly declining chip prices?
So to make a bad case scenario, one would have to assume a combination of the following: [a] wafer/chip ratio declines signifincantly, demand for memory chips is unresponsive to the price of memory chips [c] increased competition and overcapacity [?] in the wafer market compresses profit margins. [a] the decline in the ratio is largely technology driven, therev is no particualr reason why it should accelerate now. possible, but unlikely [c] don't know, but again, if the wafer/chip ratio does not suddeenly fall and demand for commodity chips is price-elastic, , we should see increased unit demand. |
