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 142.62

+2.2%

Nov 21 9:30 AM EST

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To: Ian@SI who wrote (6973)	9/20/1998 3:15:00 AM
From: David Rosenthal	Read Replies (1) of 10921

Ian et al, My point was simply that lower prices to the consumer will cause volume to increase faster than trend. This will suck up available capacity. ... which should result in some pricing power for the chipmakers. i.e. - they won't lose all future productivity gains to price decreases. The interesting thing about this is that we have been seeing this over the last year. Why do we have sub-$1000 dollar PC's? My opinion has been that overall demand weakened concurrently with problems in Asia. I don't think the PC companies are happy with this price point. I think they have adopted it in response to slackening demand. Compaq started seriously introducing sub-$1000 PCs at the end of last year. Up until then Compaq could sell as many units as they made. All of the sudden demand was slowing and so, just as you were pointing out, lower prices allowed unit volume to keep increasing. And the successful boxmakers keep getting leaner and meaner and selling at lower price points. However extremely low prices are symptomatic of a transition from a growth phase to a bust phase. At some point you use up the pent-up demand. Look at the parallel to DRAM from 1996 till now. Ramp up during a period of growth leading to more units then the market will absorb at the high shortage pricing. Prices decrease. Companies get more efficient so they can sell at lower margins but they have to sell more units to keep up revenue which uses up demand which causes more price decreases. Ultimately you get to red balance sheets and commodity pricing. The idea of lower prices leading us back to the norm assumes elasticity on the demand side (lower prices continually leading to more consumption). I think the drastically low prices of DRAMs and PCs indicate that this elasticity isn't there anymore. Throw in recession, where people and businesses have less money, and there is no reason to assume this elasticity will return very soon. To make demand elastic again you might need: * Healthy economies that re-energize old and generate new markets. * Applications so compelling that they force an upgrade cycle. Given the current world economy you more likely need less supply: * Decimation of existing companies. How long will current conditions need to be maintained before a large chunk of capacity is driven out of business? I think this is the safest way to predict when this glut will end. Figure out how long it will be before some major players fold their tents. When demand goes flat in the face of lower prices: watch out. (My very tired, bearish opinion) Dave

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