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Politics : Formerly About Applied Materials

AMAT 230.17

-1.4%

Nov 7 9:30 AM EST

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To: Katherine Derbyshire who wrote (30735)	5/30/1999 11:26:00 PM
From: shane forbes	Read Replies (1) of 70976

Katherine: Even more fundamental is capacity utilization as the this governs what the ASPs will be (Bill McClean's thinking). When you think about it, depreciation costs are the largest expense for these companies and so it is absolutely no surprise that capacity utilization is the underlying key statistic. I have always believed that (because of those high depreciation costs again) that the supply side of the equation is the key. Demand is there and always there. All this hogwash about GDP and so on is almost not relevant. This is a world that can't work without silicon. The fabs are so expensive and the incremental increases in capacity come in billions of chips not millions of chips that the companies either lose a lot or make a lot. There is not much middle ground. The rapid fluctations (the std. deviation) of the growth rate is due to capacity additions and not demand. Or more correctly, capacity additions (supply) have a much much greater effect on prices than demand. And the pundits can take that to the bank. BTW it is good that the semi-equips are seeing a momentary lapse. If their customers (the chip companies) are already upgrading capacity in droves all is lost. I don't sense an all round rush to capacity and so I think all is not lost. There are plenty of fabs still doing nothing (NSM's Portland fab). And I can vouch for the ASP increase. I have seen the numbers. People should understand two things here. One - the average chip has a lot more bits so you can't quite compare 1 chip ASP today and 1 yesterday. Two - just because 16 MB DRAM is 90% cheaper today than it was 5 years ago does not mean ASPs have declined - after all the companies may have sold 90% 16 MB DRAM 5 years ago and just 15% today. I think it is fair to say the per bit price has dropped relentlessly but that is not the governing criterion. In fact in the final analysis it is just revenues (and profits!) plain and simple. How to get there is left to each company. To be honest with sufficient product differentiation there should be a difference drawn between commodity types and non comm types of chips. Comm is decreasing as a %ge. And that's good. People should compute an ASP for MU and then decide what is really going on. Commodity = Asking for trouble. Capital is still relatively cheap and so there is lots of pressure on these commodity companies these days. There always will be. The Koreans can get plenty of dollars. But you can't buy intelligence (IP) as easily.

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