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To: John Graybill who wrote (30922)	3/20/1998 12:59:00 PM
From: ComSolut	Read Replies (1) \| Respond to of 53903

John, FYI Chip Investors Turn Blind Eye To Asia Fri., Mar. 20, 1998 Markets that willfully discount near term business conditions can prompt investors to do some pretty crazy things. Today's action in the semiconductor/semiconductor equipment sector provides us with a case in point - the stocks are holding up despite a rapid deterioration in business conditions. We don_t have to tell you the gory details because you_ve seen the wire stories. Companies in the equipment arena are falling on tough times - layoffs and cutbacks are the buzzwords of the day. Many investors will focus on the book-to-bill ratios SEMI releases in their "Express Report." While the book-to-bill ratios are very important, we believe a study of the raw numbers states a lot more about the trend of current business conditions. After all, to post a positive book-to-bill ratio all companies have to do is ship less than they book. In the January Issue of our Monthly Letter we mentioned to our readers that an "inflection point" was reached in equipment bookings and shipments. Prior to reaching this turning point, shipments and bookings jumped up and down because of the crisis in Southeast Asia. The end of 1997 brought a flurry of activity. If you will recall, November and December saw the Koreans scrambling to raise cash - a deluge of memory products hit the market. Following December_s blip, shipments and orders for front and back end semiconductor equipment have been pressured to the downside. On today's wires we read some speculation that Southeast Asia has bottomed. This is the exact opposite of what we heard in a recent visit with executives from Southeast Asian semiconductor and semiconductor equipment companies. Basically, these industry players told us the same thing we have been hearing for the last few months - Korea is on hold until they get their financial situation straightened out - Japan is at a standstill. INFRASTRUCTURE_s "Fab Rat", who happens to consult with a few Japanese companies, told us in a call today that for at least the next six months, capital spending in Japan is in jeopardy. Yesterday, at a SEMI luncheon in Austin, Texas, Jim Morgan, the Chairman of Applied Materials, told a packed house that Japan was the wildcard for 1998. Again, we have to agree. These inputs leave us with a feeling this downturn is nowhere close to the bottom. Other factors (yes, there are other factors beside the implosion of Southeast Asia) that will weigh heavily on capital spending have been obvious for quite some time. By most counts, there is sufficient memory capacity in place to handle demand through the end of the century. While we were in Austin earlier this week we spent time talking with a few of Wall Street_s finest. These analysts candidly expressed a belief that North American logic manufacturers will be announcing capital spending cutbacks. If these expectations become reality will the other shoe drop? The consensus seemed to suggest we will have another, more painful, down leg in the stocks. It is for this reason we suggest investors hold some cash for the coming buying opportunity. Some will argue that leading edge manufacturing capacity will still be purchased by major players in the industry. We agree - how much is a whole different issue. If the industry moves through a normal semiconductor cycle, unlike the one we witnessed in the fall of 1996, we will see weakness in semiconductor equipment investment and unit volume growth. The cycle of 1996 was primarily caused by a weak pricing environment and not weakness in final demand. We expect the coming quarters to bring more bad news from the PC industry. In tandem, one would have to say the semiconductor industry faces a very long summer. Combine these issues with the financial dislocations in SEA, which will probably be with us longer than originally anticipated, and the you have a scenario that makes the '96 correction look like a stroll in the park. Hold some cash and tread carefully

To: John Graybill who wrote (30922)	3/20/1998 1:04:00 PM
From: ComSolut	Read Replies (1) \| Respond to of 53903

John, FYI Part2, Makers shifting to high-capacity memory By Kurt Oeler Staff Writer, CNET NEWS.COM March 19, 1998, 6:25 p.m. PT Leading foreign manufacturers are boosting production of 64-megabit memory chips as the industry anticipates a transition to the more powerful chips by desktop vendors. But the transition will rely on other market forces besides production capacity. Japanese and South Korean memory makers plan to expand output of 64-megabit DRAM (dynamic random access memory) chips by 50 to 250 percent by the end of the year. Japan's NEC will double its monthly production to 10 million units by the end of the year, according to Nihon Keizai Shimbun, Japan's leading business daily. Separately, South Korea's Hyundai and LG Semicon also said they would double production to 10 million 64-megabit DRAMs per month by the end of the year, Reuters reported. Samsung, which produced 40 million 64-megabit DRAMs last year, will produce about 140 million this year, Reuters said. Toshiba has already said it plans to triple production to 10 million chips per month by March 1999, up from the 3 million per month planned this month. The computer industry relies on 16-megabit DRAM chips to make up the memory modules found in today's desktop systems. 64-megabit chips can pack four times as much data onto a single chip, giving a standard-sized module four times the capacity. Currently, 64-megabit memory chips are used in pricier servers and workstations, but not standard PCs. The transition will provide desktop buyers with vastly more memory capacity, but the shift to 64-megabit chips won't necessarily take place just for customer convenience, said Bruce Bonner, memory analyst at Dataquest. Computer manufacturers buy memory on a cost-per-megabit basis, and traditionally, this group has shifted to the denser memory only when the more advanced memory becomes four times or less expensive than the current standard memory. Last fall, 64-megabit DRAM was on track to hit the 4X point in the third quarter, according to some analysts, although 16-megabit DRAM was dropping in price as well. Since then, however, an oversupply in 16-megabit DRAMs has accelerated the price decrease in 16-megabit chips, postponing the crossover. Dataquest now expects the crossover to come in 1999. "Unless they price them at a loss, they aren't going to be able to sell them at a price that makes people want to buy them," Bonner said. Memory makers themselves seem to acknowledge this, as earlier this year several firms put off opening 64-megabit DRAM plants because of high capital costs and the soft market. ----------------------------------------------------------------------------------------------------- "Unless they price them at a loss" - DOES THIS SOUND LIKE MU