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Technology Stocks : WDC/Sandisk Corporation -- Ignore unavailable to you. Want to Upgrade?

To: The Prophet who wrote (12788)	7/11/2000 8:29:34 AM
From: Ausdauer	Respond to of 60323

Prophet, I tend to agree with you about the importance of drivers of the current semi build out. The demand side of the equation was totally left out in the SSB document for one simple reason...it cannot be quantified. I suppose this creates a lot of headaches for the analysts knowing they have something as intangible as that when they banty about spot prices, lead times, contract prices, capex, and other mundane figures back and forth all day. The graph of capital expenditures that they provided made no attempt to correlate spikes in capex spending with the markets being served. This is a crucial shortcoming, IMHO. If you look back at the 2000 estimates for capital expenditure growth and then peer down to the dollar estimates for these expenditures you can see that we have left the solid regression line and entered a period of hypergrowth. What are the trends in capital equipment spending? Why were these not addressed? First, I think companies like SNDK and XLNX and ALTR are typical of newer trends. Specialty semiconductors with rapidly evolving features (NOTE: SanDisk transitioned from 64Mbit to 256Mbit in one year alone.) require nimble foundries. It is risky to try and duplicate the prowess of a major Taiwanese foundry in-house and the cost would probably not be justified unless one was certain that demand will be there. To some extent the world-wide duplication of fab services may be responsible for the current increases. The rapid increase in absolute dollars spent in capital equipment may represent several separate forces. A) Leading edge specialty fabs have sensed the need to scale up production, deep six less well capitalized competitors, shift to smaller geometries (and the needed equipment to do so) and contract with dedicated customers (UMC and SanDisk is a prime example of this) for future needs. The value of these customers cannot be underestimated. B) Weaker competitors are in the fight vs. flight mode. Either they increase capital spending in step, or face extinction. This is not to say that established fabs are dropping like flies or that the potential to overbuild is avoidable. I feel the same dynamics described in previous cycles may be relevant, but the time course and dimension may be more difficult to predict. C) The types of devices being built such as digital cameras, cell phones, DVD's, settop boxes, etc... are getting smaller and more dependent on low power solutions. These trends impart certain forces on producers. Companies able to eliminate unnecessary chips from designs or condense a necessary function on a single chip will be rewarded, while commodity components become less and less valuable. These commodity products may even get designed out as they are enveloped with single chip technologies. Fabs that pick the wrong customers may get hurt in the long run. A new order of non-commodity semiconductor innovations is forming. This may include leading edge microprocessors (high-powered RISC based microprocessors, Transmeta's Crusoe,...), leading edge power supply (Li polymers) and power supply management solutions, high resolution, miniaturized LCD screens, unique wireless/GPS/Bluetooth solutions and proprietary flash memory solutions. The uniqueness of these applications will be dependent on the displacement of previously entrenched applications that no longer serve a useful purpose in the Post PC era (read: rotating disk drives, CRT's,...). Those companies with proprietary, high demand, technologically advanced solutions will grab the lion's share of the emerging markets. All IMHO. Ausdauer