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To: Jerry Denkera who wrote (27343)	1/29/1998 9:14:00 AM
From: DavidG	Read Replies (1) \| Respond to of 53903

Jerry, Thank you...but sometimes you have to use a 2X4 to first get their attention .... and then try to explain to them what the MU costs really mean.<g> Good Luck Trading DavidG

To: Jerry Denkera who wrote (27343)	1/29/1998 9:18:00 AM
From: TREND1	Respond to of 53903

Jerry Thanks again from all of us ! Larry Dudash

To: Jerry Denkera who wrote (27343)	1/29/1998 9:25:00 AM
From: Skeeter Bug	Read Replies (1) \| Respond to of 53903

first off, thanks for all the pricing information you give the thread. it is much appreciated. >>Skeeter the .04 figure your using is difficult to back into the actual net or gross costs of 16megs since the company has salaried employees engaged in other business and expenses incurred by other products.<< muei being the big one and they broke even for all intents and purposes. dram is the dog. all the other stuff is the tail. >>It is one thing to sell off dead inventory at a loss and another to keep mfgering knowing every piece you make means losing more money.<< think this through. it is very possible that selling near marginal gross cost is more cost effective than not selling as much and selling at higher prices (assuming an mu doesn't come in and steal the market share and keep the price low). especially in a capital intensive business where overhead is HUGE. economic analysis does not factor in "sunk" costs. overhead is essentially "sunk." decisions are made on the margin. if i produce 1 more chip and the marginal benefit (read sales price) is higher than the marginal cost (read gross - not net - cost) then you make the chip without regard to what your sunk cost is. >>Therefore I believe they are making money on 16meg at 3.25-4.00 but may be losing money in other areas of their business.<< if they were making money at $3.25 then the "tail" would be losing nearly $100 million, per q, on a net basis - because that is how much their dram operation is making. the tail just isn't that big. in fact, i doubt it is 10% of that amount amount which makes it minor noise in this calculation and not the big obstruction that you are claiming. >>I also suspect we will find out with next quarters earnings a much clearer picture.<< agreed.

To: Jerry Denkera who wrote (27343)	1/29/1998 8:22:00 PM
From: Kerry Phineas	Respond to of 53903

Jerry, Skeeter: if Mu has huge fixed costs (in particular capital expenditures they've already made) then they would continue to produce chips that they are losing money on even if they were no pulling in enough money to cover the depreciation. It would make sense to stay in the business, especially if they didn't have to buy more equipment in the future; they do, and they'll have to buy an increasing (in real $'s) amount of equipment over time but lets pretend they don't. On the margin, in a business with low variable costs, it makes sense to pump out the chips with a net loss. When analyzed from a medium to long term, however, it doesn't make sense for them to produce chips unless they're showing a significant profit because their depreciation schedule is whacky and their depreciation will increase over time if they are to survive. HOWEVER, here's what I'm wondering about, from the 10Q: The Company has a $500 million unsecured revolving credit agreement which is available to finance its semiconductor operations. However, the agreement contains certain restrictive covenants, including a minimum fixed charge coverage ratio and a maximum operating losses covenant, which the Company may not be able to meet if semiconductor market conditions continue to deteriorate. In the event that the Company does not comply with the covenants, there can be no assurance that the Company would be able to successfully renegotiate the agreement or obtain a waiver to the covenants of the existing agreement. In either event, the Company may not be able to draw on the credit facility. Cash generated by, and credit lines available to, MEI are not anticipated to be available to finance other MTI operation. Ergo, if their cash needs become dire, the credit facility evaporates. I wonder if they're meeting the covenant right now. I doubt it.