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To: Sam who wrote (1744)	12/11/1997 12:45:00 PM
From: Gottfried	Respond to of 9256

Sam, you said >>What if their real goal is to drive the US producers out of business eventually (taking their famous "long" view), and it doesn't matter to them if takes 3, 4, 5 years?<< They could wait that long if they had cash and good credit. Right now they have neither. GM

To: Sam who wrote (1744)	12/11/1997 12:46:00 PM
From: Z Analyzer	Respond to of 9256

<<But the real question behind Alexis's question--which I wish she would have asked--is what if they don't act "rationally", as MB suggests/hopes? After all, they clearly haven't done so with their massive chip over-production. >> It seems to me the real question is whether the new constraints posed by the IMF and banking sector on Hundai and Samsung alter thier past behavior. It would seem inconceivable that they could attempt to continue to do business as usual.

To: Sam who wrote (1744)	12/11/1997 12:48:00 PM
From: Think4Yourself	Read Replies (1) \| Respond to of 9256

Sam, my understanding from articles I have read, is that it is mostly the Koreans who are dumping. These are Samsung and Hyundai (Maxtor) (God, who'd want ANYTHING built by Hyundai?) These companies are in MAJOR financial trouble right now, due to their semiconductor plants (floor has dropped out of memory market) and the tight monetary policy restricting funds access. They may be irrational but they are not stupid. They will try to protect a 1.6 BILLION fab investment long before they will worry about a 20-40 Million DD factory. Since it is now clear that most of the US DD manufacturers are going to pull through with only a few bruises, what would you do in their shoes? Same applies to the Japanese. My $.015 worth (Deflation) Ken

To: Sam who wrote (1744)	12/11/1997 2:21:00 PM
From: Pierre-X	Read Replies (1) \| Respond to of 9256

I don't have any sage words but I offer my thoughts on the subject of "rational" behaviour. The semiconductor producers have not acted irrationally, as you suggest. They're somewhat victims of circumstances. *** SILISMURF INC. -- A story of cycles Lets go through a simple thought experiment. Suppose we are a large manafacturing company examining the possibility of getting into the SILISMURF business, a technology industry experiencing rapid growth with strong demand forecasted far into the future. We think we can translate our experience and expertise in other areas of mass-production industries like the MECHMO business where we've been very successful. If we decide that we have a shot at making some money in this business, we face the critical capacity buildout decision. How much capacity do we build? We observe that the SILISMURF business is a pseudo-commodity businesse. There is very little brand-name recognition, and the switching costs to customers are relatively low, so PRICE forms the principal basis of competition. The smaller players have no long term viability, unable to compete against the economies of larger ones. So we need to build enough capacity to at least compete against existing dominant players. Well, we are a large manufacturing conglomerate, and we are comfortable with idea of competing based on production efficiencies, something we think we are good at. This funky marketing/image/glitz/style/coca-cola/nike stuff is out of our league, we don't have any expertise in building image. But SILISMURFs we think we can produce by the bazillion, with our manufacturing experience and cheap, skilled labor base and low interest rates for easy financing. Plus there are a slew of big companies like Implode Materials and NoSmellUs knocking on our door ready to sell us the latest and greatest SILISMURF production gear on the cheap. Now, we have to make an initial capacity decision. >>Suppose<< that we plan a capacity buildout on par with a major player in the business. What would we expect to happen? We can reasonably assume that the existing players have planned capacity buildout to meet expected demand growth. So IF demand materializes according to the forecasts of industry analysts, our new production will create a situation of oversupply, pushing prices below "equilibrium" levels, and eating into the economic profits of all participants. Well that doesn't get us anywhere. Nobody's making money and everybody's pissed off at us. So what we do instead is take advantage of scale economies and create a capacity buildout plan exceeding that of the competitors we wish to defeat. We understand that, in order to successfully execute on this bold venture, we will have to have the financial and managerial stamina to ride through the supply bubble created by our entry into the business, confident in our positioning as the lowest cost producer to outlast the competition. We know and expect that prices will fall to unprofitably low levels, but we're counting on this to drive the higher cost players out of the business, leaving more of it for us. We need this to happen before the technology levels advance too far, rendering some of our capital equipment obsolete. Periodically the technology bar rises and forces everyone through a fresh round of capital outlays as they upgrade their facilities to maintain competitiveness. If no one has capitulated prior to that we will have a hard time justifying additional expenditure in a division that's already hemorrhaging money. But we have to do it if we want to stay in the business. We've made the unpleasant discovery that the SILISMURF business is not like the MECHMO business, where technology levels advance much more slowly. Only one year into the game we're already facing capital outlay requirements to upgrade our technology. Meanwhile, we've made the further unpleasant discovery that most of the existing dominant players in the SILISMURF business have had similar ideas and overbuilt THEIR capacity to try and undercut their competitors. So the supply bubble is bigger and our cost advantage is smaller, than we had originally anticipated. Then MORE bad news materialzes--demand is falling somewhat short of expectations, putting the business sector into the biggest crunch in many years. What have we done wrong? What do we do now? *** PX, CEO SILISMURF INC.