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Technology Stocks : Applied Materials No-Politics Thread (AMAT) -- Ignore unavailable to you. Want to Upgrade?

To: Cary Salsberg who wrote (9939)	5/21/2004 11:04:48 AM
From: Math Junkie	Read Replies (1) \| Respond to of 25522

"...if prudent behavior can eliminate capacity driven cycles" Pretty tall order. Historically, the time lag from ordering semiconductor equipment to getting chips out the door, combined with the unpredictability of end user demand, and the unpredictability of who will win the competitive contests in the marketplace, has guaranteed big swings in semiconductor equipment demand. Somehow I think that more than prudent behavior is going to be required to solve this problem. Perhaps a crystal ball?

To: Cary Salsberg who wrote (9939)	5/21/2004 12:46:21 PM
From: Sam Citron	Read Replies (2) \| Respond to of 25522

I tend to agree with Richard that we cannot expect "prudent behavior" to eliminate the capacity driven cycles in the semi-equip industry. Capacity planning is an art rather than a science, and there are many game-theoretic aspects where competitor #1's action is determined in large part by what competitor #2 does or is expected to do. Fear of preemption, for example, is perfectly prudent behavior, yet it may ultimately cause excess in capacity. The following paper suggests that cycles may at best be managed, but probably not eliminated: investmentscience.com I therefore find that your "no cycle scenario two" is highly unlikely. It appears more likely to me that the biggest boom-bust cycle in the history of the industry has simply caused certain temporary changes in behavior and a more cautious approach among semi CEOs toward adding capacity at this time. The memory of the bust and the lessons learned may last for a while, and firms will incorporate dynamic competitive elements to improve their capacity modelling, but it would be extremely premature to assume that semi-equip cyclicality has been eliminated. How would you weigh the probabilities of the two scenarios you have outlined? Can you think of other scenarios that a semi-equip investor might want to ponder? Sam