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Technology Stocks : LSI Corporation
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To: uu who wrote (7895)11/23/1997 1:36:00 AM
From: shane forbes  Read Replies (1) of 25814
 
Addi: Samsung is hurting because of DRAM price erosion. One way to get out of the hurt is to keep on upgrading so that the cost of production goes down in the form of production efficiencies. That article I posted is a potential worry to the semi-equip makers. It wasn't meant to imply that the semiconductor companies like LSI would suffer.

Here's the issue facing the semiconductor companies in that neck of the world:

If cash flow is negative (because you have to ship products with marginal profits or below cost) then there are only 2 basic ways you can upgrade - make an equity offering or a debt offering. Well if the markets in S.Korea tank forget the public equity offering - no one raises equity in a bear market. If private investors are leveraged and taking a hit because their equity is tanking because the stock markets are tanking and real estate is tanking (don't think real estate problem in S.Korea but this applies to other countries) then private equity financing won't work. Besides come to think of it too much money needs to be raised so private equity financing may be out of the question. That leaves debt financing. S.Korea's own bankers can't finance because their balance sheets suck with tanking equity prices (I assume similar to Japan equity is carried at m.value). So that leaves debt financing abroad. And that article showed that it is not working. Not good because now the (front end) equipment makers will suffer. (Side issue: Main reason semiconductor companies like to carry cash is because of situations like this - poor profits but can't upgrade = toast)


So AMAT and NVLS down the road suffer.

RE: effect on semiconductor companies...

1. DRAM guys:
But since the S.Koreans now can't move to the higher density DRAM or introduce efficiencies in lower density DRAM, in a machiavelian way, this will force supply of DRAM to come down and hence bring demand in line with supply in a few months. Which is good because then DRAM prices will rebound and Samsung may pull through and the semi-equip makers will be happy again because orders will come back. So AMAT and NVLS will rebound!

2. CMOS logic guys and LSI: Demand is strong. Don't think that pure logic companies are being hurt by the SEA thing. Pricing though fierce is probably not out of control. So unlike DRAM, companies are making money. This means that unlike DRAM, these companies could afford to upgrade. The SEA effect will show up in the billing numbers this quarter and next but demand for std. cells is strong worldwide and shows no sign of letting down. LSI's problems are company specific though revenue ought to rebound q2'98 on. Don't forget one thing though a lot of these SEA companies want to get into std. cells and with these SEA problems highlighting how dangerous the DRAM business can be, they might make a more determined attempt (though as I've said there are some fairly high barriers of entry).

The one bugaboo is if that entire area goes into a recession. But I don't worry about things like this! I have to go with "reasonable" and not "worst case" scenarios.
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