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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: davesd who wrote (9560)	10/25/1997 4:58:00 PM
From: Gottfried	Respond to of 70976

Gee Dave, you're so considerate.<vbg> GM <eom>

To: davesd who wrote (9560)	10/25/1997 7:35:00 PM
From: davesd	Read Replies (3) \| Respond to of 70976

post1 As we all know, Fabs for commodity chips are in an overcapacity situation. The signs of this are obvious...DRAM prices at below cost, FLASH prices dropping fast, fast enough to hurt INTC's earnings and force them to rethink capacity expansion. Sure the demand for these chips is increasing, but the supply is increasing at a faster rate causing serious deflation. There are more chips out there than people really need, and capacity exists to make even more if the demand was to increase. Some people think the answer to this problem is for FABs to buy billions of dollars of new tools to lower cost of manufacturing. Well follow this logic to it's conclusion....Taiwan spends upgrading their fabs, Korea follows, Japan follows and so on and it's a bonanza for Semi cap companies...guess what....when the dust settles, all they did was throw more fuel on the fire. You have a worse supply situation cause they can crank out more chips and nothing changed in the demand equation. The margins are just as bad as before or even worse because now they have to pay the interest on the billions they spent on the upgrade, while they are still losing money. And lets not forget they are still paying for their 200mm tools. So, 2 years later the FABs are still losing money and they go to their bankers and say ...hey lend us another $5 billion to upgrade...you see if we upgrade to 300mm, we think we can make money. Because we will be able to produce 2x more chips than before.......and if we don't do it the others will and we will be out of business......and the cycle starts again. Again from an AMAT perspective....WOW what a bonanza..... If the folks in the commodity chip business have a shred of business sense they should see this coming like a freight train....The only solution to this supply problem is...Demand has to go up dramatically and or supply has to be cut back or slowed. INTC has the right idea....stop adding capacity till demand catches up. And I suspect we will see cap spending cuts as we go into 1998 and maybe into 1999. Especially now that the currency in ASIA has thrown in a new monkey wrench into the equation. dave

To: davesd who wrote (9560)	10/25/1997 7:36:00 PM
From: davesd	Respond to of 70976

post 2 The PC business drives alot of the chip industry, INTC alone is 10% of the semi cap spending, Memory is another 40%, throw in a few more oddball PC related chips and you have about 60% of the chips sold today are PC related. So the question is....how much are the PC sales growing? Last quarter INTC said that they shipped a record number of chips... does that mean 2% more or 20% more....they didn't say....however, if I recall right Q1 and Q2 were flat shipments. Revenue wise next quarter is expected to be slightly better than last quarter. This is a major change from last year.....when they were beating estimates by 10 to 20 cents every quarter. INTC earnings this quarter are going to be below last years earnings!! If MPU demand was strong....then why are INTC margins going down, part of the reason is AMD and CYRX. I suspect that part of the reason is the demand is not as great as INTC has experienced in the past year..when they didn't have enough capacity to meet the demand....so they went on a FAB building binge assuming that the high demand will continue. Well INTC said that they now have enough capacity to meet Q4 and Q1 demands. The fab in Israel was to go online next year, but is now being pushed into 1999. I think INTC has done a good job of juggling the news to make it look like everything is OK in the MPU segment of the business. The price cuts on Monday will reflect the demand for MPU. If the MPU sales are slowing....than we are talking about 60% of the chip industry slowing. dave

To: davesd who wrote (9560)	10/25/1997 7:37:00 PM
From: davesd	Respond to of 70976

post 3 The major reason to move to 300mm is to increase the amount of chips you can produce and lower the cost of production....if we already have over capacity with the current 200mm tool base, I highly doubt that 300mm will solve the supply problem....it will just add another 2x more to the supply. And basically the prices will go down to the current margin levels. Kinda like the move by DRAM makers from 4M to 16M to 64M...4M was a bonanza because there was huge demand and not enough supply, boy did the DRAM guys make money, I'm sure you all remember MU. As more 4M supply came online and margins disappeared, folks started to migrate to 16M at 200mm and .5/.35u....cause that's where all the profits were, so the whole herd moved towards 16M. As the margins dried up there...everyone moved to 64M .35/.3u. And guess what, there are no profits to be had at 64Ms. For current needs, 64M chips are more than enough.....so I doubt that we will see any big move to 128M. My point here is that....everyone moves to areas of profit and saturates them...this cannot continue forever, and I think they will realize this sooner or later. supply has to be cut or demand has to skyrocket to meet supply. At this point we have alot of noise about applications that will require tons of memory and horsepower, but its not being used yet and no one has predictions as to when it will be needed. The $1,000 PC's, who's sales are growing the fastest are 166 to 200Mhz PC's, it seems that that is plenty of power to run todays apps. The migration to 300mm will happen, but the pace and timing is the question, I suspect that it will be after 2000 before we start to see any significant move toward 300mm. And as we get closer to the point of transition, I suspect we will see a slowing of Cap spending as they absorb their 200mm capacity before they jump to 300mm. dave

To: davesd who wrote (9560)	10/25/1997 7:38:00 PM
From: davesd	Read Replies (2) \| Respond to of 70976

post 4 In 1995, the chip companies the semi cap companies and most analysts were sure that the supply would never catch up with demand and this bonanza was going to last forever. Fab capacity was low. Chip prices were high and margins were great, backlog was growing and fabs were projecting higher and higher cap spending.....at one count there were 155 fabs under construction or planned. And MU was going to make $17/sh this year. A migration to new existing 200mm .35 technology was underway.......Well we all know what happened in 1996. So here we are in late 1997 going in to 1998.....the same bullish attitude exists regarding the semi tool companies, but the fundamentals are very different. Fabs are in a situation of over capacity. Chip supply is alot higher than demand. Chip prices are in the toilet and dropping, most likely MU will lose money this quarter. We are in a situation of over capacity which seems to be getting worse. Fab pushouts are starting to happen. And a technology transition is looming on the horizon that may make Fabs postponed some of the expansion plans as we apporach the transition. dave