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To: John Graybill who wrote (44895)	4/7/1999 7:11:00 PM
From: Thomas G. Busillo	Read Replies (4) \| Respond to of 53903

John, I don't think the 10-Q had that much to do with today. Probably more of the Merrill comments on HWP and CPQ + the negative sequential growth reported by the SIA for February (although up something like over 3% year-year). Maybe I'm not reading it close enough, but no big surprises. FWIW random observations: Once again, I'm a little confused about the "test and assembly services" for the JV's. The Company has rights and obligations to purchase all of the JVs' production meeting the Company's specifications at pricing determined quarterly. The Company accounts for its investments in these JVs under the equity method. The Company recognized losses on its equity investments in the JVs of $5.4 million and $7.6 million in the second quarter and first six months of 1999, respectively. Product purchases from the JVs aggregated $103.5 million and $149.6 million in the second quarter and first six months of 1999, respectively. The Company performed assembly/test services for the JVs totaling $21.5 million and $34.4 million for the second quarter and first six months of 1999, respectively. Okay. If you performed 21.5 million of test and assembly services and you breakout revs. in three reporting segments. "Semiconductor memory products", "PC systems" and "Other" where do these revs. show up? "Other" is given as 19.2. Last quarter there was a reclassification of 18.6 million in revs. for test and assembly services from the "semiconductor memory products" segment on the 12-23-98 PR to the "other" segment in the 1-13-99 10-Q. While this was above the total value of test and assembly services performed for the JV's and as stated in the 1-13-99 10-Q, it does lead one to believe that whoever prepared their 10-Q believe that those $18.6 mil in "test and assembly" revs. belonged in the "other" segment and not the "semiconductor memory products" segment. In light of that, my question would be how $21.2 mil. in test and assembly services for the JV's in Q2 is reconciled against $19.2 in revs. for "other" in Q2. Is it in "other"? Are they revenues? If they're not revenues, then why was a similar item treated as revenues last Q. I'm confused. The JV's are interesting. In connection with the Acquisition, the Company acquired the right and obligation to purchase all of the production meeting its specifications from two joint ventures, TECH Semiconductor Singapore Pte. Ltd. ("TECH") and KMT Semiconductor Limited ("KMT"), formerly KTI Semiconductor Limited. The Company purchases assembled and tested components from the joint ventures at prices determined quarterly and generally representing discounts from the Company's average sales prices. These discounts were lower than gross margins realized by the Company in the second quarter of 1999 on similar products manufactured in the Company's wholly-owned facilities, but were higher than gross margins historically realized in periods of excess supply. In any future reporting period, gross margins resulting from the Company's purchase of joint venture products may positively or negatively impact gross margins otherwise realized for semiconductor memory products manufactured in the Company's wholly-owned facilities. I interpret that as a convoluted way of saying "at times we may be buying goods from our JV's above the cost of what we ourselves could produce the products for." Which obviously sucks, but if that's one of the bullets they had to bite as part of the TI deal, they'll deal with it. And several weeks after almost this exact same question was asked on the conference call, we get the response: Resolution of backend constraints associated with the Company's rapid transition to .21(mu) devices in the first quarter accounted for approximately one-third of the production increases for the second quarter. And the reason why this was such a closely held secret on the conference call was what exactly? IMHO, it's somewhat interesting that "interest payable" increased from $7.7 on September 3, 1998 to $32.1 mil. March 4, 1999 (from supplementary bal. sheet info covering the "accounts payable and accrued expenses" item). RE: Capital Structure . The Company has an aggregate of $500 million in revolving credit agreements, including a $400 million agreement expiring in May 2000, which contains certain restrictive covenants pertaining to the Company's semiconductor memory operations, including a maximum total debt to equity ratio. There can be no assurance that the Company will continue to be able to meet the terms of the covenants or be able to borrow the full amount of the credit facilities. There can be no assurance that, if needed, external sources of liquidity will be available to fund the Company's operations or its capacity and product and process technology enhancement programs. Failure to obtain financing could hinder the Company's ability to make continued investments in such programs, which could materially adversely affect the Company's business, results of operations and financial condition... As of March 4, 1999, TI and Intel held an aggregate of 44,743,369 shares of common stock, representing 17% of the Company's total outstanding common stock. These shares have not been registered with the Securities and Exchange Commission ("SEC"), however TI and Intel each have registration rights. Until such time as TI and Intel substantially reduce their holdings of Company common stock, the Company may be hindered in obtaining new equity capital. I'd like to know the max D/E. Do they think the "may be hindered in obtaining new equity capital" because of some kind of clause on new equity in either of the INTC or TI agreements or just the general concern over the magnitude of expected divestiture on the plate. Good trading, Tom