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To: Bill F. who wrote (45519)	5/2/1999 9:10:00 PM
From: Bill F.	Read Replies (4) \| Respond to of 53903

tad -here is my EVEN longer response. called DRAM101- The DRAM buisness is a very cyclical and swings like a giant pendulum. The cycle begins when demand is greater than supply. At that time, producers slowly begin to raise price. They raise price because spot is above contract and they can finally say no to an order from a legitimate OEM. Suddenly product is on allocation and OEMs cannot ship machines due to a lack of DRAM. Spot goes higher, contract goes higher, spot goes higher, and profits go higher. When DRAM producers get everything they want from customers, human nature forces them to ask more. Producers demand higher prices, tighter terms, and eventually cash deposits for the right to buy product in the future. At this point in the cycle, the management teams from all OEMs make the journey to Japan, Korea, and Boise to forge great strategic agreements. With money flowing like cheap whiskey, bonuses up, stock prices up, staffs bloated, and Forbes has a cover story on DRAM profits.....the board members make a great decision to expand capacity. Just like the stock market, greed prevails. At some fine point in time, demand catches up with supply. The only problem is that the OEMs do not tell the DRAM producers that they have enough parts. After years of allocation and high prices, the consumers do not want to irratate the producers, so they take product they do not require and begin to build inventory. Meanwhile, the DRAM producers are spending money 24 hours a day to build more plants. Their boards dream of more profit. During a shortage, buyers will never lose their job for having too much DRAM. Suddenly, a genius at a PC OEM discovers that they have too much DRAM inventory and they begin selling into the spot market. Eventually, spot goes below conract and all hell breaks loose. Double orders are canceled, Michael Dell stops returning phone calls, the strategic agreements are thrown into the trash can, and producers are still spending money on more plants and equipment. Price declines and profits evaporate. OEMs find their lobbies filled with DRAM salespeople begging for orders. Human nature forces them to ask for lower prices, better terms, and consigned inventory. At this point, EBM usually writes a great peice on the glorious new "JIT" inventory programs. DRAM profits decline, bloated staffs are cut, bonus goes down, and industry giants begin to speculate on which marginal player with exit the buisness. At this point, Michael Dell has removed the producers card from his rolodex, and DRAM is moved from a "strategic commodity team" to a junior buyer with a high school diploma. Now the DRAM consumers begin to believe the parts will be long forever. Eventually, demand exceeds supply and spot goes above contract. Producers are slow to raise price to fear. They have been demoralized by years of crummy prices. Spot goes up, inventory declines, and backlog grows. When a DRAM salesman can say no to an order, he wil..... Where are we today? Well, spot is at a lifetime low. Inventory at the producer level is at an all time high. During a shortage contract price is typically negotiated on a quarterly basis. Today contract is negotiated "JBS" (Just Before Shipping). Losses are high and buyers are in a euphoric state. In other words, supply exceeds demand. When will it turn? Nobody knows. If this this person did exist, wall street analysts would have accurate forecasts, dataquest would always be correct, producers would never have excess capacity, and buyers would never experience a shortage. How how can it go? Look at MU profits during the last shortage. How low can it go? 64K DRAMS were two for a quarter in the early 80's. I think we have a LONG way to go before we get to the bottom.