Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Sam Citron who wrote (9980)	5/22/2004 1:51:17 PM
From: Cary Salsberg	Read Replies (1) \| Respond to of 25522

RE: "...as tool costs increase, the fixed cost component rises, making it more difficult to employ capital in smaller increments." A new fab cost between $2-3B. At the AMAT conference call, it was stated that tool costs have moved up from 50% of capital expenditure to 70%. Consequently, while 30% of the capital cost, land, buildings, automation, material delivery systems, etc., may require a "big" increment, this increment doesn't increase capacity and hence doesn't have any potential to affect cycles. The 70% for tools, $1.4-2.1B, can be implemented one production line at a time. My estimate is that the most expensive tool, the lithography scanner, costs $10-15M, and a single production line costs about $200M (this total figure is top of the head and needs considerable refining). If I am correct, the fab can be filled out in 7-10 increments which are closely tied to end user demand. RE: "That is also a very interesting and important distinction. I think it would be quite valuable to contact Luenberger and get his reaction to your theory." I am not certain how "theory" applies to my statement. Most cyclical companies are influenced by the macro economic cycle which affects product demand. Unit demand is cyclical. Falling unit demand is exacerbated by falling prices which can fall to variable costs before ceasing to be economically rational. Semi cycles have occurred while unit demand continued to be monotonically increasing. Companies can't control unit demand, but they can try to control capacity to keep supply consistent with rising demand.