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To: A. A. LaFountain III who wrote (43920)	3/17/1999 10:14:00 AM
From: Carl R.	Respond to of 53903

Thanks again for a well thought out reply. I do have a few comments though. First you said that until recently MU had been a technology laggard. I would take issue with this because true technology laggards don't last long in this business. What I would agree with is that until recently MU concentrated on using advanced technology differently than their competitors. They applied advanced technology to older chips to achieve further cost reductions making them the low cost producer of older generation chips while their competitors applied advanced technology to move on to the next generation. Thus MU was still reducing costs at 4MB while competitors were moving to 16MB, and MU was still reducing costs at 16MB while competitors were moving to 64MB. Now competitors are moving to 128MB and 256MB while MU is still working on cutting costs at 64MB. What is different this time is that MU is apparently also working on some advanced products such as RDRAM while the competitors are not forgetting to continue to reduce costs at 64MB. Thus both are adopting parts of the other's strategies. I would agree with you however that a misunderstanding of MU's strategies caused many people on this thread to consider them to be a technology laggard, and to prematurely write them off as a result. And further I would add that the failure of their gloomy forecasts to come true, combined with a failure to adjust their perception, no doubt led to the vehement posturing. I further agree that supply and demand will never be in balance, at least not for long. The industry will constantly flux from undersupply to oversupply, but hey, that's what makes it fun. <G> Furthermore with inventories at CPU makers dramatically reduced, the cycles should happen even faster than in the past. Now a small surge in demand could cause a shortage, and a small reduction in end user demand could cause a glut. But that just makes for even more fun. <G> Your take on capex is much more in line with mine than Skeeter's view. Yes equipment sales are increasing, but from a very low level. Still my equipment stocks are doing quite nicely. <G> But I agree that equipment sales are still low enough that demand will eventually catch up with supply, probably towards the end of this year. Part of the clue lies in RDRAM. RDRAM requires more silicon, so a widespread switch to RDRAM will decrease the supply (or rate of increase) of DRAM helping to shift the balance towards shortage. I also agree that we won't see any significant increase in dollars spent on DRAM per box by the box makers. To the extent that CPU prices fall, it will get passed on in lower box prices, not transferred to other components. On the whole I largely agree with your analysis. We both agree that the DRAM makers will recover, and that the recovery will be faster than the semi industry as a whole. I see the recovery a bit sooner than you do, and I am more convinced than you are that MU will be a beneficiary, but basically we aren't too far apart. Carl

To: A. A. LaFountain III who wrote (43920)	3/17/1999 10:44:00 AM
From: Skeeter Bug	Respond to of 53903

>>1) Skeeter's comments about rapid ramps in CapEx appear to be correct, but only to a point. As a former equipment analyst (at H&Q and Bear, Stearns), I pay close attention to equipment spending. In fact, I operate on the assumption that the typical viewpoint is 90-degrees wrong - semiconductor industry performance doesn't affect capital spending nearly as much as capital spending sets the tone for semiconductor industry fundamentals (it's not 180-degrees wrong because the relationship is extremely symbiotic). And yes, Skeeter's right, the data does indicate that equipment purchases are trending up. But it's important to keep in mind that this upward trend is off a bottom last summer/fall that was a pretty good imitation of nuclear winter. Even with the recent increase, CapEx appears to be well below what should be considered norms.<< tad, just a couple comments. first, i understand there is a lag between capexes and real supply hitting the market. however, the issue i raise is that capexes are ramping while we are still in a glut. mu increased their capacity around 60-70% or so and bit output dropped 10%. this balance is merely due to a manipulation of demand that, imho, is not a long term solution. just talk to an opec representative ;-) i believe korea did the same, just to smaller extent. add back that output and what do you have? a glut. however, these parts will become outmoded and they must sell. the koreans alone drove dram from about $7 or $8 in early to mid 1997 to over $10.50 in a few months by holding back inventory. the end result? a quick race from $10.50 to $1.50 when the unleashed a flood of inventory. of course, the bulls extrapolated $10.50 on up, NEVER understanding the ROOT CAUSE. i'm not sure they still do or they would understand the current situation better. i have said before and i will say it again, i don't think dram turns until everyone says that dram is a terrible place to be and there will not be a turn for a long, long time. this will be reflected in a very low mu stock price. $80? expectations kind of high? everyone can't be wrong... again! ;-) when they believe that things will or have turned then they will act in a way to participate (add supply). right now everyone believes dram will turn in 6 months (or has turned already) and they all act like it. they add capacity. if mu did nothing they should have 60% more capacity than they showed last q. i also agree that the equip makers orders are off of low points. however, check out the rate of growth. it won't be long, at this rate, before we are at new highs. btw, i don't think this growth rate continues. however, everyone else does b/c they think we've "turned." so they act like it and order equipment, dump inventory and aggressively increase output. thereby guaranteeing we haven't turned. nice point on dram per box. the big growth is over. time to slow. 15% unit growth? you are very nice ;-) jmho. good luck.

To: A. A. LaFountain III who wrote (43920)	3/17/1999 10:54:00 AM
From: Earlie	Respond to of 53903

Tad: LOL, especially the ex-wife, and off-shore experiences. Someday, we'll trade war stories,....have a "Worrell 1000" under my belt,... (and an early one at that) (g) Your views on MU's technology "followership" as opposed to leadership are similar to my own, Re: "capex spending -.... nuclear winter of last summer,....",.... also agree. I see the current move up in equipment spending as a bit of a yawn. I also see the memory yield ramps as MORE than able to meet the demand needs for the foreseeable future. What is new to the equation for me over this past two years, has been the more-than-perceptible saturating of the PC marketplace. This is something none of us have had to deal with in forecasting. Another new factor is the collapse of more than half the world's economies, which subtracts most of their respective populations from the ranks of those who might be prospective PC purchasers. Even worse, there are no new applications,....very new to the equation. Finally, a market that has ceased to "discount" and that disregards deteriorating fundamentals, sure is new to me. Aside from being "new", all of these factors are negative for memory "profits". When one adds this to the fact that most memory producers hump plenty of debt and rarely (if ever) produce free cash flow, they represent excellent targets for bearish perspectives as far as I am concerned. Looking further out, it's difficult to envision how North America escapes being bruised or worse by the spreading deflationary wave. I personally believe that this is more important than the actual PC/semi situation, particularly with stock prices in La-La Land, and large percentages of the population playing the markets via their Omega "Trade Stations". Most of the stats. paint an unfolding disaster (trade imbalance, current account deficit, a planet papered in treasuries and greenbacks, the manufacturing sector shrinking, record consumer debt that depends on stock prices for its continuance, lousy savings rate, etc.) Hard for me to be bullish about anything in the face of this, so I'll stay a bear. I particularly like the staggering narrowness of the current market. (g) Best, Earlie

To: A. A. LaFountain III who wrote (43920)	3/17/1999 12:59:00 PM
From: DavidG	Read Replies (4) \| Respond to of 53903

Tad, Yes equipment is now on the way up and the AMAT's and TER's were adequately rewarded since Oct 8th.<g> IMO what is significant right now is not just the direction of the trend but the magnitude and the time factors. To put this into perspective let's go back to our favorite time last summer when TXN gave away their fabs to MU and kicked in 100's of millions of cash infusion in exchange for a lucrative stock investment.<vbg>. This changed the commodity game for DRAM significantly since MU then became the company with the ability to quickly make cap expenditures for upgrades where SEA companies were ( and in some cases still) in financial trouble forcing them behind. As a result MU company is in a much better position than most of their competitors...and MU is insuring that they remain that way by closely monitoring DRAM dumping and improper funding to their competitors. As far as 128mb, 256mb chips being introduce early...well its nice...but look at the costs of them. Until crossover occurs the 64mb chip will be the chip of choice. The "forever bears" failed to understand the concept of crossover and it was best demonstrated with the 16mb to 64mb crossover. It never occured for the reasons they predicted so for over a year they kept predicting it was around the corner and the corner kept getting pushed out. The driving force for 64mb chips were the need for 64mbyte and larger pc systems. That is when the necessity for 64mb chips occurred and then 6 months later the crossover happened. When 128mbyte and larger systems are the norm than the 128mb or 256mb chips will be necessary. IMO MU is still in the best position in this speculative DRAM commodity sector with a cost per chip now around the $6 level. Now memory chips have a good relationship with Moore's law and so far is following it quite well ....so as long as the ASP's drop proportionate to the cost all is well. Let's hope the SEA's have learned their lesson this time around.<ggg> Also I guess it bothers me that the "forever bears" take any negative news and try to spin it to the maximum. As you may have already noticed some here continue to quote memory module prices and try to work backwards to determine what MU's contract prices should be. It is silly at best and I have given up on those issues. MU's ASP's will certainly be higher than the spot prices being quoted on this thread...and that is all that is important. Also some here refuse to acknowledge that demand is growing significantly year to year as the need for larger memory systems has grown to a minimum 32 mbyte system and a typical system of 64mbytes. By the end of the year 128mbyte will be the norm. In addition demand will be pushed by the low cost $299 PC's now being introduced with 32mbytes. Not only will all the homes without a Pc now buy one but expect to see two or three in a typical home just like a tv or stereo. MSFT and MU will do well and instead of INTC maybe now NSM and AMD will get their chance.:-) BTW thanks for your input, DavidG

To: A. A. LaFountain III who wrote (43920)	3/17/1999 2:37:00 PM
From: TREND1	Read Replies (2) \| Respond to of 53903

Tad You have been around for 20 years. Have you ever met anyone that made money buying puts and calls ? I mean made money year after year ? Larry Dudash

To: A. A. LaFountain III who wrote (43920)	3/17/1999 7:55:00 PM
From: PAinvestor	Respond to of 53903

Tad, Toshiba & Samsung had unprecedented internal B/B ratios of 2X at the beginning of this year. Their semiconductor divisions swung onto the black in late September last year. High end parts still remain in shortage. Industry capex as a percentage of revenues are below optimal levels (22-23%). What we have brewing here is a major supply shortfall which has been been developing for sometime. Silicon cycles themselves are not caused by fluctuations in bit demand, rather bit supply, which is driven by capex plans of chip makers. That much we agree upon. Therefore the most crucial aspect to analyzing this industry has been the access to/understanding of what management intends to do with the funds they have. But this time you have to also take into account the difficulty in procurement of funds (remember that Korean semiconductor makers were effectively subsidized by their banking sector until last year) and advances in technology that are increasingly differentiating those chip makers that are competitive and those that are not (thus the belated recognition by the Taiwanese to act as foundries for the Japanese). In addition, a simple Mb/PC & PC growth model to forecast bit demand growth will become increasingly irrelevant as non-PC DRAM applications (especially in the digital consumer electronics fields) take a larger share of the total pie. Just an indication, but Sony's incredible new Playstation 2 will have two 144Megs of RDRAM memory included when it is unveiled next year. They company plans to ship some 15m units in the first 18 months...