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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: John Goldthorp who wrote (33778)	6/30/1998 11:39:00 PM
From: Paul Engel	Read Replies (1) \| Respond to of 1571813

John - Re: "Paul, Is Merrill right?" I take it you mean Kurlak, the Merrill semiconductor analyst. If you lump all semiconductors into one "group", he's probably right. However, that one group is heavily weighted by the DRAM makers - since that is the largest unit volume product for integrated circuits. Within the DRAM group are the large Japanese (NEC, Toshiba, Hitachi, Fujitsu) manufacturers, Korean (Samsung, Hyundai, LG SEMICON) and now Taiwan - ACER/TI (now all Acer), etc. Almost all of these are losing money. Why? Because of tremendous price declines. My reference point is 1993 - 1995 when one 4 Meg DRAM sold for about $14 and a 4 MegaByte DRAM SIMM cost about $130. Today, 32 MegaByte DIMMs cost $35 (give or take). That means 8x capacity increase at a 4x cost reduction, for a NET 32X PRICE DECLINE! Since 1996, much new DRAM capacity came on stream in Taiwan as well as Korea and Japan. The net result is horrendous price pressure, but OVERALL DRAM UNIT VOLUMES are steady or rising. Bear in mind - the new memory chips are generally 64 Megabits - much larger in size - and more expensive to make - than the 4 Megabits and 16 Megabit chips that were in high volume in the 1993-1995 time frame. This DRAM glut won't clear up until there is a major shakeout - I don't think the memory market can grow fast enough to allow all current manufacturers to recover their profitability. The Southeast Asian financial crisis has compounded these problems as well as created others - Cellular phones were a huge growth business in Asia and they have slowed considerably, taking down all the semiconductor makers that serviced this market - Motorola, Anadigics, TriQuint, etc. As for the PC arena, many OEM's are trying to spur unit sales via price reductions. This has been compounded by Compaq and IBM's massive channel stuffing in Q497 which have left a glut of PCs out there to be sold off at a discount, exacerbating the price problems. Intel, AMD and Cyrix all suffer from the latter problem as they seem eager to maintain whatever market share they have. Both AMD and Intel have been able to introduce new products with higher prices but AMD's prices have come down a lot faster than Intel's. Cyrix seems to be a basket case in this regard. Now - what hopes do we have for the future? Kurlak sees the current scenario continuing - maybe it will. In that case, he will be correct. The one saving grace for Intel, at least, is that their continual introduction of newer CPUs, with higher performance and higher prices (at modest increases in cost) will more than offset the price declines on the older CPUs. Intel's new market segmentation will assist this - selling XEONS at healthy margins unfettered by pricing pressures because AMD and Cyrix have no comparable products. So, I see a bright ray of hope for Intel to maintain its current, albeit depressed, profit levels. If the overall market improves, Intel will do quite well. AMD and Cyrix and IDT, however will battle it out at the low end along with Intel's discounted low end Pentium MMX remainders as well as cheap Celerons. If the world economies collapse completely, everybody will be in trouble - Intel included. I have no way of knowing if that will happen or not - but it could. Paul