A $500 PC just doesn't have any room for the
>profit margins Intel has grown fat on. Add in the enormous increase in fab cost
>for each succesive generation (a .18 micron fab already costs several billion
>to build) and the future of the CPU industry, in my opinion, is increased
>commoditization, ugly price wars, and desperate fights for vanishing profit
>margins. Intel is yesterday's news, and that's why it has shown no significant
>profit growth for the last three years - though it may have a brighter future
>as a speculative hedge fund; after missing tis earnings expectations two
>quarters in a row, it decided to count the money it made betting on the
>Internet stock lottery as if it were earnings from business, guessing
>(correctly) that neither its stockholders nor the SEC would give a hoot.
Yet if US microprocessor firms can maintain some monopoly power as unit sales of pc's expand as prices plunge, they may do quite well. They'll go from high margin/low volume to lower high margin/more volume. And AMD and Cyrix may gain on Intel as a result. Still better than ever lower margin/ever more overproduction memory chip business. So the relative profit expectations from US firms are indeed quite a bit stronger than elsewhere, partially explaining the tech specific US stock market rise. As long as the divergence is increasing--even if US profit margins are themselves dropping--US tech stocks (and the dollar) will remain quite strong.
If things get really rough, then expect further cartelisation. the US government may do nothing to prevent it, whatever internal distortions it causes in the US economy, in order to allow the surviving American companies to continue to scare off foreign producers from building up competitive capacity.
Of course further cartelisation may not be necessary; more government programs like Sematech (along with VERs) which announced to the world seriousness about maintaining the US technological position may already suffice as a threat to stay out.
Perhaps the US govt is being so cautious about breaking up Microsoft so as not to create room for a new foreign monopoly commanding a bigger network abroad merely to supplant it as well? Probably why the US government has allowed massive mergers and monopoly power in aerospace.
Strategic trade theory was centered on these kinds of questions. The US government seems quite committed to the power of its technological monopolies.
But you have encouraged me to give a call to some old hands in Silicon Valley. I'll report back.
Needless to say, you may well be right about Intel's future. Moreover, if the next downturn is disturbingly deep with no govt stabilisation program at hand, future profit expectations may be so dim to crash capital goods orders (in which pentiums and cutting edge software would be embodied) even those that would give an immediate fillip to profitability in desperate times. Yet these monopoly prices seem to be themselves weakening the structure through wage cutting, deflationary strategies they are forcing upon technology using firms. So these tech monopolies may bring on the crash in which they will suffer the first and the worse; they have become self destructive, and a fetter on the forces of production. See penultimate chapter of Marx's Capital I.
Wireless bandwidth, in particular, may be where it is at,
>and Europe certainly has a fat lead there, thanks to its early adoption of
>unified standards.
Quite an interesting point as the rest of your informed points.
>However, the problem I see with the technology industry in
>general is that it is absolutely drowning in capital, thanks to the Greenspan
>Bubble: in just about any promising area you can think of, there are several
>competitors armed to the teeth with no-strings-attached,
>lose-as-much-money-as-you-want-for-as-long-as-you-want investor's money. And
>not just on the internet. That's no way to extract monopoly rents.
That's why they call it vulture capital. But people like Kenney and Florida thought it would ruin solid American companies to the advantage of the keiretsu. They were wrong.
yrs, rakesh