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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets!
LRCX 148.32-3.3%Nov 14 9:30 AM EST
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To: shane forbes who wrote (5711)6/6/1998 10:40:00 AM
From: Clarksterh  Read Replies (1) of 10921
 
shane - They can then use some of this cash to upgrade some facilities that badly need upgrading.

There are only two reasons for buying new equipment. The first is capacity increases, and we all seem to be in agreement that this is not needed at this time. The second is to reduce costs (via shrinks, maintenance, ...). If some piece of equipment is just too expensive to operate, it will be upgraded whether they are making a profit or not. To do otherwise will put the DRAM makers out of business in short order due to the positive feedback. They can avoid these kind of expenditures for only 1 or 2 quarters, and they have already had that hiatus (due to the SEA liquidity crunch). Thus, they have to make these purchases no matter what their cash flow looks like.

Thus, what is important is not how much money they are making, since it has only a secondary effect of equipment purchases, but capacity. Excess capacity can often be measured by DRAM price drops, but that relation is no longer valid if the market is artificially raised.

Clark

PS Having said all of that, I suspect many of the SEA DRAM companies do not behave rationally. If they start making more money they may choose to spend it unwisely, so it could have an effect on the semi-equ companies, but of course that just hurts them in the long run.
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