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Politics : Ask Michael Burke
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To: jeffbas who wrote (25129)12/16/1997 3:50:00 PM
From: Earlie  Read Replies (1) of 132070
 
JB:
In a nutshell, the world simply has too many fabs.
These plants are very expensive to put in place and are highly automated, hence very large equity and debt costs as well as very high fixed costs. Once in place, they must produce (or place untenable financial strain on their backers). In this environment, price wars are inevitable, and they will continue until some participants are chased out. This will take some time, and during that period, margins will continue to erode. Even as some go broke, the wars will continue as the new owners have a much lower cost base (bought in bankruptcy for $.10 on dollar etc.). This scenario is already under way.
Most chips end up in PC's. PC demand has not kept pace with the added capacity.
The margin pressure will ebb and flow with the supply/demand equation. Until that situation sorts itself out, few participants will make money.
Survival in this nasty period will depend on the depths of the pockets and the pain thresholds of the various participants. MU is tier two in this regard.
I'm sort of glad you brought up depreciation.....MU provides a decent example of how this item can be used to assist (artificially inflate) reported results on a short term basis. How long have they had Lehi in place?
I think MU is a gift to the shorts at this juncture.
Best, Earlie
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