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To: Apollo who wrote (30690)	8/29/2000 1:20:44 PM
From: Uncle Frank	Read Replies (1) \| Respond to of 54805

>> My WAG is that the growth of the Internet will change historic cyclicity. That would be wonderful, but I'm skeptical. As I understand it, the 4 year cycles are more related to capital investment, capacity increases, and generations of technology than demand. Btw, I did not mean to imply that there isn't a seasonality cycle for semiconductor sales. Due to computer and consumer electronic sales, 4Q will be a great period for them. uf

To: Apollo who wrote (30690)	8/29/2000 3:05:08 PM
From: Jacob Snyder	Read Replies (2) \| Respond to of 54805

re: cycles: This gets down to a very basic question: are cycles due to human psychology, or technological limitations? If the former, then all the "New Economy" talk is just a sign of a market top. If the latter, then maybe we will never have another recession. Human Psychology: When times are good, people get optimistic. We are hard-wired to over-weight the recent past, in our decision-making. We make straight-line extrapolations, and consistently miss the inflection points. So, businesses will always over-invest during good times. The opposite process happens during downturns. As a result, we always overshoot (in out optimism and pessimism), when trying to predict the future. This tendency is hard-wired into the way human brains work, and that is why everyone knows the semiconductor industry is cyclical, but managers still cannot stop themselves from creating overcapcaity, alternating with undercapacity. Technological limitations: 100 years ago, executives at manufacturing companies had to make decisions about investing in new capacity, based on information on demand that was months (sometimes years) old. The information at their disposal had few details. Then, their decisions didn't change production for months or years. Today, all that is changed. When I buy a doll for my daughter's birthday, the cash register reads the bar-code, and stores data on the exact model. That data goes (or can go, if they copy the things that Dell and Walmart are doing) to the central office, and then to the doll manufacturer, and then to their parts suppliers, in a few hours. Data on demand is realtime and detailed. This is a fundamental and permanent change. In addition, JIT manufacturing means that output can be rapidly adjusted to exactly meet demand. So, realtime detailed data available to decision-makers, and faster response times, will end cycles. My opinion: For semi companies, they cannot adopt JIT manufacturing. They have to spend 1-2 Billion $, and then hope that when the fab is running at capacity (2 years later), demand is there. The time it takes to go from deciding on capacity expansion to full production, means that semi cycles will continue. I don't see anything changing that, anytime soon. Actually, with the new technology (copper, 300mm), fabs are getting more expensive, and more complex. It will take longer to get a fab to full capacity. So, the lag-time will be more likely to increase, which will worsen the cyclical nature of the industry. Since everyone is currently building fabs as fast as they can, I expect overcapacity sometime in 2002.

To: Apollo who wrote (30690)	8/31/2000 1:05:28 AM
From: FLSTF97	Read Replies (1) \| Respond to of 54805

Apollo, although I believe your statement about chip sales remaining strong is correct, that only looks at the supply side in total. An awful lot of new capacity is being put in place including by Intel. Microprocessor sales are not growing at the rate of Intel's capacity expansion right now, so the question is whether Intel's other businesses are growing fast enough to keep Intel's capacity utilization high. If not, then there could be negative surprises by late 2001. On the plus side Intel generally adds capacity more intelligently than most, but they can still be caught in a downdraft due to the overall market. There are companies with capital expansion budget equivalent to their total sales. Does that seem rational? We'll see. FATBOY