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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: Carl R. who wrote (45283)	4/22/1999 7:23:00 AM
From: A. A. LaFountain III	Read Replies (1) \| Respond to of 53903

Re: Outsourcing production to Taiwan Maybe this is just semantics, but I'm not sure that we should be contrasting Taiwan DRAM production with Taiwan foundry business. As foundries, they can make logic or memory for customers. I have been thinking about this for the past week and now believe that the reason that we are hearing about tight foundry conditions in Taiwan is because of DRAM production. While logic demand appears healthy and there are reports of modest increases in leadtimes for some logic parts, I am unable to find any evidence of an upturn in logic sufficient to explain a dramatic tightening in logic foundry utilization. However, we have seen an increase in DRAM supply. It would therefore appear likely that some of the supply growth (in addition to the well-publicized bit growth at MU and Korean vendors) can be attributed to a ramp in DRAM production in Taiwan. After all, this would be a perfectly logical response to the relatively firm ASPs in DRAM three months ago. And Taiwan was the most aggressive investor in equipment throughout 1997-98. No disagreement with your conclusion that capacity would be diverted to "foundry" (which I take to mean logic) if it were more profitable (and by now it must be). Maxing revenue per wafer appears to be a paramount strategy, although I would assume that costs per wafer probably go up with the shift to logic and tend to be somewhat of an offset. But <$7 64Mb DRAM pricing has got to look a lot less appealing than what was being bandied about 3-4 months ago. - Tad LaFountain P.S. This is a variant on the entire "marginal producer" aspect of MU investment. Bulls on the stock have been pointing to the scorched earth effect of the dramatic bit growth as a reason for investment in the stock. But isn't it true that marginal producers always drop out at the bottom? The real issue is how easy will it be for such marginal players to reenter at the top, and I fail to see any disconnect from historic patterns where marginal (to the point of bizarre) entrants come in during the boom and screw things up for everybody. How does this get prevented? Not by blowing people out at the bottom, but by steady investment during the initial stages of the upturn by the leading producers to create appropriate amounts of supply over the course of the natural growth in demand. That requires a certain amount of discipline and foresight that may in fact become more evidenced with a higher level of market concentration. This would lead to a more muted "recovery", but what could also be a more lasting one and lead to a dampened cyclical profile for the industry. It would require, I believe, a significant change in mindset by some of the leading producers, but that process could very well be underway. - TL