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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Don Lloyd who wrote (70944)	11/23/1999 5:15:00 PM
From: cfimx	Read Replies (1) \| Respond to of 132070

>>Example: I can replace a worn out $1000 machine with a brand new $2000 machine that makes my workers more productive. If all competitors continue to earn the exact ROC, profits will be higher for all and (all else being equal) they should be sustainable...)<< what you are describing though is an orderly, rational market. competitive, especially commodity businesses, are seldom orderly or rational. What if one your competitors drops his price to gain share and ACCEPTS a lower ROC? And what if more competitors follow and ALSO accept a lower ROC? That doesn't sound like a formula for sustainable HIGHER PROFITS FOR ALL. That's exactly the problem in any commodity business like memory. MU is at the mercy of what taiwan, korea, and japan do with prices. The world is not like a textbook.

To: Don Lloyd who wrote (70944)	11/23/1999 5:49:00 PM
From: Les H	Read Replies (1) \| Respond to of 132070

The measure of productivity is operating income per worker or net profit margin per worker. Using unit output ignores the consequence of falling unit prices in fields such as PCs, cell phones, etc. In addition, there is a tremendous amount of subsidy provided to equipment mfrs recently in the overcapacity of telecom services being funded by the equity markets. At the rate they're going, it's dwarfing public works projects of the past (funded by the federal government). There's no real way to account for much subsidy the equity markets are giving to equipment mfrs by funding so many services for free or almost no cost, such as ISP services, long-distance services, etc.

To: Don Lloyd who wrote (70944)	11/23/1999 7:52:00 PM
From: Freedom Fighter	Read Replies (1) \| Respond to of 132070

Don, "When AMAT produces a new piece of equipment that produces twice as many ICs per wafer and sells it to all comers, all the DRAM manufacturers must buy it to survive and prices are driven lower by competition. While nominal unit profits may increase OR decrease, the destruction of the economic value of the older equipment and the requirement of new investment in the new equipment is as likely as not to drive the DRAM manufacturers to a cash flow negative position. AMAT will continue to make new equipment and stress its customers up to the point where it kills them off." I believe your example is one where the existing investment capital is becoming more efficient. I'll have to give this scenario some more thought but I think in the end the ROC should revert to "some" required rate depending on the business. I don't think this is typical for much of the economy. Usually, companies in aggregate add to their invested capital and produce progressively higher profits without much change in the real return on that capital over time. Wayne