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Technology Stocks : Semi Equipment Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Big Bucks who wrote (9755)	5/10/2003 10:12:27 PM
From: Cary Salsberg	Read Replies (1) \| Respond to of 95640

RE: "By and large, chips have become commodoties..." I have a very small selection of chip companies that I am willing to buy. I agree that many chips have become commodities. I agree that manufacturing efficiencies available to most chip makers is a contributing factor. The key factors are that chips are components with customer or industry defined specs and most companies don't have sustainable competitive advantages. RE: "...fewer foundry fabs can produce massive quantities of chips. That means that less semi-production equipment will be sold..." It is true that with shrinks and larger wafers, the productivity, in unit volumes, of a fab increases. The cost per unit also falls significantly and, as you pointed out, competition drives the price and the profit margins down. The key element that is the crux of the debate is the elasticity of the market. Does the lower prices result in higher volumes and does the revenue, the product of lower prices and higher volumes, increase and increase significantly? If the revenues increase significantly, the small profit margin includes capital depreciation, and the profits increase significantly, then capital expenditures should maintain their historic percent of revenue. Historically, fab output has increased and unit costs have decreased, so your scenario is a continuation of a trend. The short term distortions caused by the bubble have called the historical trends into question because the secular growth of unit demand and revenue was interrrupted. RE: "People like simplicity, functionality, and inexpensive "tools" that are user friendly and non-cumbersome." I agree 100%. I also believe that none of the above are characteristics of the IT industry. They are characteristics of the successful players in the consumer products and services industries. Cheap, powerful chips which consume little power are this world's best building blocks for achieving "simplicity, functionality, and inexpensive."