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Politics : Formerly About Applied Materials

AMAT 249.89

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Nov 26 3:59 PM EST

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To: Clarksterh who wrote (24450)	9/20/1998 12:08:00 PM
From: Katherine Derbyshire	Read Replies (2) of 70976

>> As Ford got more and more efficient at manufacturing cars, he dropped the prices without adding much in the way of extra features. His margins stayed about the same since the demand elasticity was such that even at lower per-car costs and sales price his total revenues still grew substantially. << This is exactly the model that the semiconductor industry usually follows. Productivity improvements make computers cheaper so more people buy them. We're in complete agreement there. The problem, short term, is that, as with Ford, we've fallen off the demand elasticity curve. The market has as much memory and as much computing power as it thinks it needs at current prices/profit margins. For the long term, yes, we can expect demand and supply to match and the win-win scenario of more powerful chips for less money and fat margins to return. That's why I'm long term bullish on the industry. The question at this point is when the short term demand shortage will work itself out. Katherine

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