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Technology Stocks : MEMC INT'L. (WFR -NYSE) The Sleeping Giant? -- Ignore unavailable to you. Want to Upgrade?

To: olduvai5 who wrote (3568)	6/21/1998 2:56:00 PM
From: Scotsman	Read Replies (1) \| Respond to of 4697

I would agree that WFR is feeling pain now, but to quote, of all people, Conan "what does not kill us makes us stronger." The layoffs they are experiencing now will, if they survive, make them much more lean in the future and hence, if their management is worth anything, much more competitive. As far as SEH, its very hard to know what is happening in a Japanese company. Their culture is much more intrenched in cross connected companies, banks, and the government than ours. I would submit that that is part of the problem with their entire economy, and is why they are in trouble as an economy. I guess I see this as an opportunity not only to pick up a good quality company with a large market share cheap, but also an opportunity for WFR to become the largest supplier in the world later.

To: olduvai5 who wrote (3568)	6/21/1998 5:08:00 PM
From: Carl R.	Respond to of 4697

I was aware that you were mixing foundries with wafer makers as TSM is obviously a foundry. Apparently though their are several companies called CSMC though, including a foundry in Singapore and one in Hong Kong, as well as a wafer maker in China. I am not surprised that the foundries are expecting a pickup in business before the wafer makers though. Your comparison of the wafer makers is interesting. I agree that WFR is currently in a lot of pain. They made their pain much worse than it had to be. If they had made some cuts two years ago the problems today would not be nearly so severe. As I previously mentioned, companies like AMAT, LRCX, and KLIC had massive staff reductions in late 1996, while WFR is just now making similar reductions. I should also point out that experienced companies like AMAT are well familiar with the cycles of this business, and in good times employ a large pool of temporary workers who are the first to go at the first sign of trouble (and with no severance benefits, I might add). Again, contrast that to MEMC and we see a slow-moving inflexible system of permanent employees that makes it hard and expensive for MEMC to respond to the business cycles. You comment that you suspect that the pain levels are a relative measure of cost structure. This implies that Sumitomo has the lowest costs, followed by SEH, with WFR bringing up the rear. This may well be true, but there is an alternate possibility as well. Many posts on the Yahoo thread and on this one as well imply that WFR has a reputation of producing the lowest quality wafers in the industry, and that they sell primarily based on price. If true, then that would certainly explain the relative pain levels. If WFR indeed is a low-quality, low-price producer, then what would happen is that in times of shortage fabs would be unable to buy higher quality wafers from competitors and would be forced to turn to WFR for additional wafers, and WFR's sales would be fine. Furthermore WFR wouldn't need to discount prices very much to get business, so their profits would be good as well. However in times of surplus fabs can pick and choose from suppliers. A tiny difference in finished chip yields can justify choosing a different supplier, and price differences in raw wafer prices would have to be substantial to make up the difference. Thus in times of surplus the highest quality supplier should fare pretty well, and the lowest quality supplier should hurt much more. From your description of suffering one could conclude that Sumitomo is the low cost supplier, or one could conclude that they make the highest quality wafers. Similarly one could conclude that WFR has the highest costs or the lowest quality. Given the large number of posts on both threads about low quality at MEMC it seems likely that quality is indeed at least partly responsible for the current hardships at MEMC. If INTC is about to order large quantities of epitaxial wafers from MEMC then that surely indicates that MEMC is a high quality producer in that area, and given the higher profit margins on epitaxial, that is important. If quality is a problem on standard wafers, then it may take another shortage to bring profits, and if other suppliers are not hurting as badly as MEMC then they may resume expansion before an actual shortage situation arises, leaving MEMC behind. This is my fear. On the other hand, MEMC has modern plants and quality equipment. There would seem to be no reason that they couldn't produce quality wafers if they set their mind to it. I hope that the reason for the current suffering is high costs and not low quality. If costs are the problem, then the cost reductions that they have implemented will put them in good position. If the rumors concerning INTC orders are true, then this may not be dead money for long after all. Thanks for your knowledgeable responses, Carl