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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jack Kunkle who wrote (30766)	6/1/1999 10:21:00 AM
From: Ian@SI	Read Replies (2) \| Respond to of 70976

Jack, Do you not make any distinction between the price of individual chips and the price of consumer devices in which they may be used? Is it inconceivable to you that chips can become more powerful, more valuable and priced higher than less powerful, less valuable chips? Is there anything inconsistent in your mind with fewer, higher priced chips being used in consumer devices which have more function, more value and are lower priced than prior consumer devices? Please do not respond. I'm not interested in any investment advice from someone who finds it necessary to argue with Katherine on a fundamental characteristic of the chip industry and an easily verifiable fact. To form the conclusion that all chips are commodities ignores reality. At no time did Katherine imply that existing chips retained their price forever. I believe that the data she presented does imply that integration has continued; that chips continuously get more transistors / functionality - thus the higher ASPs when introduced. You are right when you say, "... will result in a poor investment decision.". It would be difficult to invest in this sector successfully if one does not understand its economics. Ian.

To: Jack Kunkle who wrote (30766)	6/1/1999 10:45:00 PM
From: Katherine Derbyshire	Respond to of 70976

>> I would suggest that to the end user the greater density and more functions on a devise offer greater net benefit/price than the previous generation. To simply produce data that suggests that ASP's normally trend upward is misleading. To draw the conclusion from the data that chips are not commodities will result in a poor investment decision.<< Then we are trying to make two different points. My point is that, as ASPs increase, chip makers have more money to spend on fabs and AMAT makes more money. As ASPs decrease, chip makers have less money to spend on fabs and AMAT makes less money. For purposes of this discussion, I don't much care what happens to the chip customers. Yes, as it happens, the chip customers do get more functionality for their money. That's one reason why they're willing to continue to buy new chips, and why chips therefore are not commodities in the same way that, say, wheat is. If Moore's Law ever breaks down, we'll see a huge change in the industry's business model, but I don't see any signs of that happening right now, and Moore's law effects are not what I'm talking about here. >>Finally, given Moore's second law, the profit structure to the manufactures of the newest generation product is not linear and thus to suggest that manufacturers reap huge profit margins as ASP trend upwards is also misleading.<< That's an oversimplification. ASPs depend, among other things, on supply and demand. Can we at least agree that a supplier whose product is in short supply will make more money than one whose product is readily available? ASPs don't cause large profit margins, per se, but they are a metric indicating the supply/demand state of the chip industry. Katherine