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To: TREND1 who wrote (30764)	3/19/1998 12:10:00 PM
From: Earlie	Read Replies (5) \| Respond to of 53903

Larry: The loss will be significantly larger. Why? OK, here's my take. Apologies in advance for approximations, but they work well enough. Reason one - PC sales growth is mediocre Last year, PC worldwide sales were roughly 85 million units. Market here is glutted. 50% to 60% price reductions garnered a lousy 2-3% additional penetration. Big deal. Surveys consistently show those without PCs neither want nor interested at any price. Don't blame them. PCs don't do all that much for the average Joe, once word processing and email is taken into account. Scratch games, given the Segas (talk about value!). Net is great for info hounds like our fraternity, but most too tired after a hard day in the office or truck, and just want to watch a good movie or football/basketball/hockey game Business also glutted and fully netted. Most starting to understand that the big productivity gains attributed to PCs are more properly attributable to lower borrowing costs. Also starting to add up the real costs of heavy PC ownership and seeing a remarkably large number (training, networking, maintenance, upgrades, etc). Business needs are well met by under $1,000 machines, and they are in no hurry to "upgrade" (the term is a joke to MIS types). Most will sit on hands until after Y 2000. for obvious reasons. No new apps. This is the most important non-sales driver. Those who think the internet will drive the market for PCs should do some homework. It won't. It's just one more communication channel among a broad range. We think it's awesome, but most find it both clumsy and info overload. Much on net isn't even info. After cheap email, the appeal is limited for many. Net commerce is not going to replace stores, catalogues, etc.....again, it's just one more add-on sales channel...good for a few things, lousy for most. Asia was every PC producer's growth hope for 1998 to 2000. Forget Asia. So let's now be generous and figure on 100 million PC units for 1998 world-wide. I doubt it will get there, but let's be generous. PCs need 32 Mbit, so figure 4 X 64 Mbit chips @ $10 (ASP for year) = $40. memory revenue per box. Not a big number, and PCs soak up the lion's share of all memory produced. Even doubling the number to take other uses into effect, still leads to a ho-hum figure. Revenue growth will be negative. Reason number two - Supply is obscene Each year, more shrinks, more bit growth. Rocket science not needed to figure how many fabs the world really needs. Unfortunately, there are far too many. and they are expensive so they must continue to operate to absorb those high fixed costs. None have much room to cut costs, because they are highly automated, so the blood bath continues until only a few remain in the arena. Reason Number three - MU can't compete MU's competitors committed to 64 Mbit 12 to 18 months ago. They bought and installed the DUV technology at that time. They are up, running and shipping. MU is in catch-up mode. MU's balance sheet is not strong, and this is requirement 1 in this game. Their competitors now have big currency advantages as well as a compelling need to export. The non-booked interest is still real and will devour the company in the current low margin environment. It can quite legitimately be argued that the debt holders already own a big piece of this company and will soon own more. They simply can't raise money...neither debt, nor equity. Future mandatory writedowns already point to a balance sheet that is much weaker than what the company presents. Inventories, Lehi...jokes on the left hand page. Company run rates are not encouraging (0.3 million 64 Mbit sdram in Q2.?) Steep ramp-ups play hell with yields and MU is in a desperate ramp-up on 64 Mbit. Who buys the big 16 Mbit inventories, and at what price....think of them as stored bananas PC100 talk is impressive but there will be precious few buyers, so who cares....it won't contribute to revenues, never mind profits, for many quarters. Basically MU won't produce 64 Mbit fast enough to make up for 16 Mbit revenue shortfalls. I look for at most, $240.0 million in revenues with higher costs all round (transition costs are a bear) in Q3 MUEI will remain a drag, that is if it survives. Q4 just gets worse ...figure $200.0 million in revs, with reduced margins.. Write it down and hit me with it later if you wish, but the company will lose another half billion this year. . Dead Meat, solid short Best, Earlie