Thread,
With everything that's been happening in Asia the last few months, I felt that it had to be effecting Deswell's operations. My concerns inspired me to call Mr. Lau. Because of my schedule and his, we were unable to talk until late Tues night. I am again impressed by him and very much appreciate him taking the time to talk to me.
The conversation was not like my prior one with him. It appears he has been warned not to give out company information not available to the public. He apparently has been getting calls from other individuals and this may have been due to Mike and I reporting our access to him. Mike and I both asked that the calls to him be limited, but we should have known that this wouldn't be heeded. If the calls continue, I expect that Mr. Lau will limit these conversations to analysts and fund managers like many CEOs. It may be that he talked with me only because he recognized my name when I left the message asking that he call me back. (This surprised me!)
Anyway, he was unwilling, or felt unable, to talk about company activities. We did talk about the Asian situation - the purpose of my call - and I felt some of the comments related to Deswell. He said that the economic situation in Asia was not good and that companies everywhere were feeling the effects. It was hurting companies in China because the yuan had not devalued. He was upset that the US had not made attempts to stabilize currencies in the area, particularly the yen. Because of the situation, demand had lowered and competition increased. Again, he was not speaking of Deswell, but of commerce in Asia and more directly in HK and China.
When I asked him directly how it was effecting Deswell, he repeated that he couldn't really give me any specifics, but he could say that Deswell will continue to be a growing profitable company and that dividends will continue. He asked what the market price was and I told him 16.50. He said, "all I can do is report what we are doing and the market will have to decide what it's worth". He also said they would try to get the quarterly report out as soon as they could so that everyone will know what's happening. I asked about the individual companies and got vague answers, but I was able to form an opinion.
My impression and opinion (repeat 'my opinion') - reading between the lines - After thinking about the conversation, I surmised that Kwanasia has seen a decline in orders, but that Jetcrown and Kwanta continue to grow at a slower rate. With everything that has been happening in Asia, this doesn't come as a surprise. Companies have reduced inventories and production because declining currencies may allow them to buy at cheaper prices. There's also the weaker Asian consumer market and the potential for a weakening of the global market. The last few months have not been a time for companies to take the risks of placing large orders not knowing what is going to happen in the region. Deswell is in a good position to ride this period out and should be stronger when the economies recover.
I'm revising this Qs revs and earnings down about 15-20% from my original projections. The balance of the year will depend on how things unfold in Asia. If Japan will take measures to strengthen the yen we can see a return to stability in the region. It is encouraging that the US has finally stepped in to support the yen and is pressuring Japan.
My confidence in Mr. Lau and the rest of the Deswell management has not diminished and I continue to hold for the long term. It would be ridiculous to sell at current market levels. Even zero growth over the next five years makes the stock worth far more than these prices.
FWIW,
Ron
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