Hi Glenn Nunn; A parable on vertical integration...
Consider the case of OVON. A few quotes from a recent
EE-Times article:
Demise of OIS said to loom as 'crisis' for big defense
contractors -- Top military display maker could go lights out
Should OIS cease operations, the who's who of military
integrators will be in a bind.
Traded on the Nasdaq as OVON, OIS saw its public shares
range in value over a 52-week period from 1/32 to 2 9/16,
closing last Tuesday at 3/16. "We're working very hard to
bring a positive outcome to this," said Tapp.
Gary Jones, president of display maker FED Corp. (Hope-well
Junction, N.Y.), called the OIS situation "not atypical" in the
industry. Late last year, Korea's Hyundai pulled the financial
plug on now-defunct active-matrix LCD maker ImageQuest (Fremont,
Calif.), and this year, Litton Industries dissolved its AM LCD
operation in Canada.
techweb.com
In other words, OVON goes belly-up and leaves its customers
in the lurch. The customer's options are to either stop
production or buy OVON. But if the customer buys OVON, then
it is on that (inescapable) road to vertical integration.
Now think about the current situation among the suppliers
of disk drives. They are hurting pretty bad. Sure DELL gets
good prices, but are its suppliers going to stay in business?
Are they going to do spend the money to continue to reduce
costs and advance technologies? Why should they, if they
won't make money doing it?
Things are peachy right now. But, eventually, this cycle,
like all the previous cycles, will turn and disk drive glut
will turn into a disk drive famine. When that time arrives,
the vertically integrated makers will begin to look pretty
smart. The same applies to the other parts of a computer.
I've been in the hardware business for a long enough time to
see both the good times and the bad times for IC makers. When
the good times roll, you cannot buy newer parts at any price,
in even small quantities. Someday, those times will return,
and IBM and MUEI, will be making as many boxes as they can
turn out, while their competitors are limited by "allocation"
on those memory chips.
In order to predict what is going to happen in the future,
we have to know what part of the cycle we are currently
in. Linear extrapolation only works for very short time
periods. It's been getting colder in Seattle this past
week. Will it get colder a month from now? Probably so.
But will it be colder 11 months from now? Probably not.
Will there be more carbon dioxide in the air 11 months
from now? Probably so. Will this have an effect? Probably
will. How much? Less than the cyclical yearly variation
in temperature.
-- Carl
P.S. I didn't mean this to get off into the subject of
global warning. Anybody wants to converse on that subject,
please use a private message. |
