BHB:
A well written response, and I appreciate your sharing of your source, which is no doubt very credible.
I share your view that the Korean meltdown will have fundamental and very nasty consequences not only for the Korean people, but for North America as well. While many N. American investors prefer to ignore it, they do so at their peril, and I have commented on this frequently.
There is an alternative view with respect to how this situation will play out. Korea has only one tool with which to fight its way back to the surface and that is "exports",.....exports of whatever they can produce and whatever they can sell to the rest of the world. This situation also holds true for several other bleeding S.E. Asian nations. As a result of currency devaluations, those exports are now even more competitive with corresponding N. American products, and even more important to Korea in terms of acquiring badly needed foreign currencies.
It should also be remembered that the Korean manufacturers cut back on their shipments to N. America this past Spring/Summer, partially in response to the nth dumping charge, and partly to ensure on-hand inventories while they converted over to 64 Mbit production. That this was an error of judgement on both counts is now apparent, in that MU and the Taiwanese filled the void effortlessly, and the 64 Mbit chip still hasn't developed as a serious market, and is in massive over-supply in any event. Korea will fight ferociously to recoup lost market share in this arena.
The scenario of rising memory prices is not easily accepted unless many many production plants around the world somehow disappear or cease activity. I have no doubt that some Korean production capacity will fall by the way side (indeed, Korea has already lost 6 of its top 30 conglomerates, and more will follow). Be that as it may, there are many fabs just coming on stream in several other jurisdictions, even as several have just moved into production this year, and each can be counted upon to improve production efficiencies as they settle in. The Taiwanese do not share the Korean debt problems, and they are rubbing their hands in anticipation. All of this relates only to the supply side and does not address the falling growth rates in the demand side of the equation.
For many months, several bears, (this writer included) have been pointing out the deteriorating conditions within the semi industry, and have been warning of the inevitable consequences. Those conditions continue to worsen. I can't conceive of other than inconsequential and momentary improvement, until the industry completes the "sweat-down" cycle, which appears to me to be barely underway. Time will tell
An additional comment if I might. With respect to your comments about Korean financial methodologies, your views are well founded. The level of graft is amazing, although that nation holds no monopoly in this regard. What is to me ominous is the degree to which Japan is the baseline banker to much of S.E. Asia's crumbling loans. Over the next few months, this will have implications for all of us, in measure well beyond our current concerns for Korea.
Anyway, that is what makes markets, and your views are appreciated. We all benefit from the dialogue. I'll remain a bear with respect to MU and the industry in general for a while yet, until I see the supply-demand imbalance improving. Additionally, if history is any guide, the damage wrought to stock prices will be over-done to the down side even as they were to the upside. MU will see single digit stock prices before this Summer.
Best, Earlie |
