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Politics : Formerly About Applied Materials

AMAT 230.17

-1.5%

Nov 7 3:59 PM EST

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To: LemurHouse who wrote (30838)	6/6/1999 12:11:00 PM
From: Katherine Derbyshire	Read Replies (1) of 70976

To predict ASPs, you need to predict two things: chip supply and chip demand. The first is pretty easy: both die shrinks and fab construction have a long lead time, so you can see more capacity coming. Predicting demand is much harder because it depends on everything from global economic conditions to Bill Gates' software release schedule. Most of the attempts to predict ASP that I have seen assume that chip demand follows its historical growth curve, tweaked by the particular forecaster's economic growth assumptions. Bill McClean, probably the most visible advocate of ASPs as a predictive metric, is calling for roughly 7% ASP growth in 1999, with +12% in 2000 and +16% in 2001. The good news, at least for an equipment company investor, is that ASPs lead capex by 6 months to a year. It's not clear to me whether equipment company investors (or management!) in general understand the correlation, so someone who does might have an advantage. (It's also not clear what the correlation between capex and stock price is. Since, as I've pointed out before, I don't invest in equipment companies, I'll leave that one as an exercise for the student.) Katherine

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