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To: wily who wrote (39147)	9/26/1998 10:03:00 PM
From: Trey McAtee	Read Replies (1) \| Respond to of 53903

wily-- i think here is part of the problem with semis and the BTO PC model. they require that suppliers hold inventory until the absolute last possible moment so that PC OEMS do not have it on their books. now, semis have to run full out to lower marginal costs to minimum. so, they by necessity get squeezed. this makes the likelyhood of big S/D imbalances in favor of supply going forward less realistic. this is not to say that imbalances are not possible, but that they will not be as dramatic as the imbalance in DRAM in 1995. i do not know the rationale of carls investment in CPQ, but i can give you my own...CPQ is moving into the consumer space agressively. IMHO, they will become the next sony in consumer electronics. good luck to all, trey

To: wily who wrote (39147)	9/28/1998 3:18:00 AM
From: Carl R.	Read Replies (2) \| Respond to of 53903

Regarding the impact of build to suit, the effect is really not all that complicated. Imagine first a conventional system with DRAM in inventory at the manufacturer, DRAM in computers in the manufacturer's warehouse, and DRAM in computers in stores. Now imagine a build to suit system with minimal DRAM inventory at the manufacturer, and with no DRAM in computers except ones that have all been purchased. Switching to build to suit causes a one time reduction in demand for disk drives, cases, DRAM and other components as the post-manufacturing inventory vanishes. The manufacturer simply slows production of new systems until the inventory is gone. Once the one time reduction is over, then demand for DRAM from the manufacturer once again matches up with end product sales with one important difference. In a conventional inventory system there is a lag between the two, but with a build to suit system the demand flows through immediately and an increase in end product demand shows up faster and with more effect than previously. Thus it is possible that the only reason for strong prices is seasonal effects magnified by the lack or finished goods inventory. If I said that these benefits were yet to be seen, I apologize. What I meant was that the harm done by the conversion has been seen, and it is now over. Demand for chips at the source should now once again be coupled to end product demand, only with faster response. As for the semi-equipment question, the situation is this: semiconductor companies must make a choice when to buy new equipment which reduces marginal cost but increases fixed cost. When chip prices started to fall as supply began to exceed demand, the semis went on an equipment buying binge in order to reduce marginal costs. This caused equipment sales to rise again in 1997, but worsened the problems for the chip companies. The reason for this is that when you cut costs you do it by reducing die size and increasing yields, both of which give you more good chips to sell, thus increasing oversupply. Now many of the semis are hurting more than they were in 1995. I believe that this time around they can't afford to go on a buying binge and thus this time equipment sales will increase more slowly. If I am correct and PC sales fall again post-2000, then equipment sales could fall off one last time. Of course they will eventually recover as the cost savings of moving to a lower feature size demand it, the only question is when. Do I have recession worries? Absolutely. In fact I can't see how we can avoid one. Thus my current tactics are more like hit and run rather than a longer term perspective that I would prefer. Why CPQ and not Dell? Well I suppose that the main reason is personal prejudice. I bought a Dell once and had very negative experiences with both their support and their hardware. (For what its worth, I strongly recommend MUEI computers - the support is incredible, and the hardware is top notch, and this is being typed on one). I also feel that as computers get cheaper the reasons for going mail order decrease, and that both the trend to low priced computers and to internet shopping will hurt them - but of course I may be wrong. In any case their PE is awfully rich, and if the fall, they could fall a long, long way. These may not be good reasons, but they are mine. <VBG> Hope these answered your questions, Carl