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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Investor2 who wrote (3947)	12/18/1997 2:21:00 PM
From: Scott Maxwell	Respond to of 10921

I think he was trying to say that spending on equipment has been excessive at 30% of revenues recently. I disagree, since the trend should be toward equipment spending making up larger and larger fractions of industry inputs. That is, semi design costs and fab equipment costs (which include process design costs) should rise (eventually limiting Moore's Law) while labor and materials inputs decline.

To: Investor2 who wrote (3947)	12/18/1997 3:16:00 PM
From: Jay M. Harris	Respond to of 10921

I2, essentially in the last down turn, global equipment spending was proped up as a percent of global semi company revenue running at approximately 30% since 95. This was primarily the pacific rim spending without regard for ROIC. This was a strategic emphasis on global market share at any cost! 21% is the rule of thumb for the semi industry to remain near supply/demand balance to preserve prices and margins. Essentially, we have seen the global economy overspend on equipment and drive supply of semi's well ahead of end market demand. This became evident in 1996 prices. However, the Koreans cut back on production temporarily to prop up DRAM prices. This prevented many fabs from going out of business as cash flow was temporarily restored. The Koreans continued to spend during this time frame which caused the 1996 cycle to be more shallow than would have otherwise been the case. I truely believe that the Koreans will sell DRAM down to $1.50 US because of their current debt service cash crunch and the associated foreign currency kicker as they repatriate semi sales back into WON. There is a distinnct possibility that this cycle will be deeper than 1996. In fact, I fully expect 6 fab closings. Jay