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To: Scott Maxwell who wrote (3848)	12/16/1997 12:26:00 PM
From: Sam Citron	Read Replies (5) \| Respond to of 10921

Scott, RE: DRAMs and Pricing Thanks for explaining so clearly and tersely how inventory management strategies can cause DRAM prices to approach and even fall below (at least, temporarily) variable cost. I have several follow-up questions, but first a bit of prologue. I sense a sharp dichotomy between the bull camp, as exemplified by James Morgan, who regards small cap memory chips as soon-to-become-obsolete "brown bananas", and the bears who revel in pointing to the incredible slide of small cap memory prices. I seem to recall that buggy whip prices also eventually went to below variable cost, from whence they never recovered. Could we be facing such a watershed period soon for 1Mb memory chips, when demand will simply slide off the charts into oblivion? Or is there still a normal positive elasticity of demand, causing DELL and CPQ to load up on 1 Mb memory while it is so cheap? What switching costs does a box-maker face in moving from low capacity memory unit configurations to higher capacity configurations? How meaningful an improvement in performance does the typical PC user, who uses her PC mainly to compose letters and reports and surf the net, realize by doubling her DRAM from, say 16 Mb to 32Mb? Or for that matter, from 32Mb to 64Mb? What is the point along the DRAM demand curve at which margin cost exceeds marginal utility for the average user, and how is the proliferation of the net and other new apps affecting this "sweet spot" along the curve? Is "video-over-the-net" the killer app that will drive demand for big cap DRAM? If so, then can we expect 64Mb DRAM and above to pause until deployment of cable modems reaches critical mass? What applications are there currently or envisioned for Gigabit DRAMs that IBM and Toshiba are now piloting? Thanks for your time and patience, SC