j,
I came to the conclusion that Deswell prefers to take the tax write-offs on expansions in the Q they occur rather than deferring thru depreciation because of this Q's report. They had no large expansion and the margin jumped up. I looked at past reports and found the same thing - margin appeared proportional to degree of expansion.
As to the minority interests. I would think that buying out the minority interests would be the thing to do and it may happen, but, there may be reasons that it isn't. In China, and here for that matter, it's sometimes wise to share the profits with certain individuals.
We also must remember that Deswell is a 'holding company'. Their cash reserves and the poor Asian economy may result in them having more minority holders from other buyouts. While they are now concentrating on internal growth, I'm sure they wouldn't ignore other opportunities. Dennis and I were discussing the potential of HIHOF for Deswell, Hongkong based with a large facility in China, a minor plastics and metal stamping competitor that could use some cash, an excellent customer list (Sony, Sanyo, and others). If they see a fit and could get the right terms, I'm sure Deswell would be interested.
IMO - They now have almost too much cash and should be doing something with it. $34M liquidity (after the warrant monies) for a company doing their volume is very high, particularly with their growth potential. While the liquidity has attracted me to Deswell, I almost think they are being overly cautious.
For what it's worth,
Ron |
