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

To: A. A. LaFountain III who wrote (45289)	4/22/1999 8:04:00 AM
From: Carl R.	Read Replies (1) \| Respond to of 53903

Brilliant Tad. I think you are probably right, and from now on I will think of the foundry business as encompassing both DRAM and logic. I, too, have been puzzling over how the foundry business got so tight, so fast. Especially since it was not accompanied by a surge in mask business. The mask business has been growing of late, but not at the rate I would have expected to accompany such a dramatic surge in the foundry business. Since I was indeed thinking of the foundry market in terms of logic, I was puzzled. But if the foundries were in fact filled with DRAM wafers, then there would be no surge in masks required. This is indeed a change in the way the market behaves over the past, and perhaps MU would benefit from a shift to this production model as well. In the past capacity removed from DRAM was gone. But using the Tiawanese model they can flow from DRAM to logic quickly if prices firm. This has broad implications for stabilizing the DRAM market. When prices fall fast, DRAM production from these foundries will fall as they shift back to logic. As DRAM prices rise, DRAM production will rise quickly as production shifts back to DRAM. On the whole this may be a positive for the market and lead to more market stability. It should help to eliminate the tremendous peaks and valleys of the past, and keep profit margins similar on various electronic devices. Of course there has always been some flow between the various semi markets as producers shift production to more profitable wafers, but this takes the concept to a new level. The ramifications of this are interesting, though. A dedicated DRAM producer like MU should be able to achieve a lower cost than a foundry that shifts to and from DRAM. Thus they should be able to remain profitable on a long term basis because once prices fall below the foundry costs for DRAM, the foundries stop producing DRAM, thus limit price declines. This effectively eliminates the bottoms from the cycle. On the other hand the fact that the foundries can flow so quickly back to DRAM if prices rise should also serve to cap DRAM prices and DRAM profits, thus effectively eliminating the cycle tops unless there is an overall semiconductor production capacity shortage. My take then is that with this development the DRAM cycles of the future will be less severe at the bottom, and less profitable at the tops than in the past. The DRAM cycles will also tend to be in synch with the entire semiconductor sector. If correct it has some short term implications for MU as well. MU will probably never see that $200 cycle top that some analysts were looking for. On the other hand MU will never see the single digits that others here are looking for because after this sharp dip down in memory prices, DRAM prices should quickly stabilize as foundry production drops out. With less severe cycles of course, some of the fun of trading MU will be gone. This will leave the question of what level MU will stabilize at. Thanks for your always well developed and presented thoughts. Your posts are always a pleasure. Do you have any thoughts as to whether the recent surge in equipment orders represents a sustainable level for the coming up cycle in semiconductors, or whether it is sufficient to kill off the nascent recovery? Carl