David Rosenthal: recommendation

Transcript context

…Which, by the way, how crazy is it? The founders of BCG and Bain are the ones who co-developed this, or at least named it and formalized it with Morris when he was at TI. Totally. The insight is that the goal that you are playing for is to be the largest volume player at the end of the game. If you take that as a given of, if we get to be the largest volume player, this is a fixed cost business, this is a scale economy’s business, we can spread that fixed cost over the maximum number of customers, how do we get to the maximum number of customers in the early stages of the game where it’s more competitive? We accelerate the pricing to where we think it will get to at the end of the game. That’s why doing these price cuts, and also starting low with your prices. You can even start unprofitable with your prices in the early days in a given node generation, because the goal is to crowd out the competition, become the industry dominant number one player, get all the customers. Once you aggregate that demand, then you get the scale, and then you can get the economies of scale pricing. Just get to that as fast as possible is the name of the game. It works backwards. It actually involves a lot of market sizing. At maturity on this node, what do we think demand will be for, call it 40-nanometer? How many orders of individual chips will there be in 40-nanometer? Well, to have the cheapest price for customers, we need to do the biggest ordering. Then it’s just a matter of how fast can we get into volume production? Everyone intuitively grasps this, oh, economies of scale, but the implications across your whole business, your pricing strategy, strategic finance, when do you decide to take on debt? When do you not? When do you decide to take on more shareholders?…

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