OK, let's go over it one more time:
The Company purchases assembled and tested components from the joint
ventures at prices determined quarterly and generally representing discounts from the Company's average sales prices. These discounts were lower than gross margins realized by the Company in the second quarter of 1999 on similar products manufactured in the Company's wholly-owned facilities, but were higher than gross margins historically realized in periods of excess supply. In any future reporting period, gross margins resulting from the Company's purchase of joint venture products may positively or negatively impact gross margins otherwise realized for semiconductor memory products manufactured in the Company's wholly-owned facilities.
The prices are determined quarterly. They are generally a discount from the selling price, and are not a function of the cost of production. Since the selling price last quarter was high and provided good margins, the discount was less than there gross margin last quarter, meaning that MU made less on chips from the JVs that they did on their own production. On the other hand, in periods of excess supply (like right now), the discounts are higher than what they make on their own production.
This agreement tends to stabilize MU's margins. In good times it lowers their margin, limiting their profits. In bad times it increases their margins, limiting their losses.
If you disagree with my interpretation of this clause, please explain to me what you think it means.
Carl
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