Semi-Equips - Buy when BLOOD is running in the streets! Message Board

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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!

LRCX 142.60

+2.1%

3:59 PM EST

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To: Ian@SI who wrote (3582)	11/26/1997 7:01:00 PM
From: John Dally	Read Replies (2) of 10921

Bob & Ian, The spot price at the Achilles site indicates $3.10 for the 4Mx4-60ns SOJ FPM. The Smith Market Watch site shows the price was $6.20 on July 25th, indicating a 50% price reduction in 4 months. This seems to be a very rapid price decline to me. Industries with high fixed costs, low marginal costs, and overcapacity tend to drive sales prices down to the marginal cost of production, forcing everyone to produce at a loss (when you include the amortization of the capital equipment) until the weak players leave the business. I assume that's what's happening with DRAMs right now. (If anyone knows the marginal and fully burdened cost of producing such a chip, please post it.) The other part of the story is how will Korean manufacturers finance new equipment purchases? Korean companies are highly leveraged (350%-400% debt/equity) and will be spending their cash flow paying back $ interest and debt. Korean (and Japanese) financial disclosure standards are very lax. Bankers can't be certain of the financial health of many of these companies and IMO are unlikely to risk lending new money for equipment purchases given the excess production capacity, currency and stock market turmoil. Lastly, my guess is that much of Asia is headed for recession. Given the financial crises in SEA, Korea, and Japan, it's hard to imagine that there will be much economic growth during the next year. I assume this will affect technology investment and end-user demand. IMO, it all adds up to a pretty rough year for semi equipment manufacturers. Best regards, John.

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