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To: Norrin Radd who wrote (4721)	2/27/1999 3:44:00 PM
From: DJBEINO	Respond to of 9582

DRAM margins to rise modestly Vadim Zlotnikov; Sanford C. Bernstein The dramatic underinvestment in DRAM capacity during the past three years has clearly caused prices to stabilize. This will drive margins upward for vendors, particularly those with advanced manufacturing capacity. DRAM capacity above 0.25-micron, however, currently accounts for nearly half of total wafer starts. That is not economically viable for these companies, since the $10 price tag on a 64-Mbit device is slightly below the variable cost of production in the older fabs. The cycle upturn will last at least through 2000, because it will take at least two years of aggressive investment to accelerate capacity growth. Peak margins for the DRAM industry during this cycle will approximate those of the 1984 and 1988 upswings, but will fall short of the extraordinary profitability achieved in 1995. This view may be counter-intuitive, given the higher operating leverage of the DRAM companies and a likelihood of much greater market-share concentration. But the rationale is twofold. First, there are fewer opportunities for DRAM vendors to displace the value-add of other suppliers. DRAM vendors' high margins in 1994 and 1995 were due to an increase in DRAM content per PC from $140 in 1993 to $289 in 1995. Today, DRAM accounts for roughly $80 per PC. If DRAM prices are flat in 1999 and bits-per-PC growth is 45%, nearly $40 will be added to a PC OEMs' bill-of-materials. Since growth in the number of new PC users is occurring in the price-sensitive portions of the market, PC ASPs are likely to decline by 6% to 7% in 1999-or $100-vs. a 10% to 11% decline in 1998. Thus, the DRAM content increase of $40, plus a price decline of $100, would need to come out of PC vendors' margins or other components. But pricing on flat-panel displays, microprocessors, and operating systems is relatively fixed, and PC vendors do not have the option of sacrificing their razor-thin margins. So, the combination of stable DRAM pricing and 45% bit growth is unlikely to occur. In fact, discussions with PC vendors suggest that most intend to keep DRAM and disk-drive content from increasing as a percentage of total PC cost. Bit-demand growth will be modulated to avoid DRAM shortages and price increases. In fact, DRAM dollar growth is highly unlikely to exceed PC unit growth. This is not the 1995 scenario; the result will be lower margins. The second reason for lower industry margins is the absence of a marginal high-cost producer. Since pricing is set by the marginal vendor, industry consolidation and the "higher" level of competition among leaders will actually be detrimental to vendors' margins. Copyright ® 1999 CMP Media Inc. techweb.com

To: Norrin Radd who wrote (4721)	2/27/1999 3:46:00 PM
From: DJBEINO	Read Replies (1) \| Respond to of 9582

Editorial: Koreans are neither down nor out By Jack Robertson Electronic Buyers' News (02/26/99, 11:10:48 AM EDT) Korean chip makers are ramping up capital investment again, boosting spending on new production equipment to roughly $2.6 billion this year. That's bad news for Japan, where financially strapped chip companies will be forced to hold down capital spending for the second year in a row. It also means that the Korean chip industry-no matter how the merger between LG Semicon Co. Ltd. and Hyundai Electronics Industries Co. Ltd. shakes out-won't give any edge to Micron Technology Inc. or the upstart Taiwan foundries. The increase in equipment spending in Korea will be devoted primarily to upgrading existing fabs, said Chi-Luck Kim, president of the Korean Semiconductor Industry Association. As Micron has proved, converting production lines to advanced, state-of-the-art technology can increase DRAM output almost as much as building new fabs. Both Samsung Electronics Co. Ltd. and Hyundai are making DRAMs on 0.22-micron processes, the same as Micron. The trans-Pacific rivals are each starting to ramp up 0.18-micron production, which yields another 25% to 30% DRAM chips out of an 8-in. wafer. In addition, Samsung is starting to install a 300-mm-wafer pilot line at its Kiheung complex, and Hyundai is planning its own 300-mm pilot project at an empty LG facility that it expects to gain in the oft-delayed acquisition. The next step to volume production of 300-mm wafers is still several years away, but when that comes, the Koreans will obtain two-and-a-half times more DRAM chips per wafer than with existing 200-mm (8-in.) substrates. Micron is playing its usually cautious game regarding 300-mm, but isn't likely to let the Koreans beat them to the punch when the next-generation wafers hit the fab track. So where are the Koreans coming up with the money to support the capital-spending increase? Part of the funds are coming from increased cash flow, as sales revenue has grown due to stable and even slightly higher DRAM pricing. The Koreans also continue to lean on suppliers for whatever assistance they can get, and have raised heaps of cash through securities offerings in the past six months. Japanese banks also reportedly are attracted by higher interest rates in Korea to finance some chip investments. Ironically, these loans put the Korean chip makers in a stronger competitive position against Japan Inc. Korean companies still carry debt loads that seem staggering by U.S. standards. But the plucky Koreans continue to amaze the rest of the chip world by still operating on the mantra that money is no object to staying atop the DRAM business. ebnews.com