Thread,
I continually research Deswell because it's such a large percentage of my holdings. I recently reviewed each of Deswell's major customers.
In the 1997 Annual report, four primary customers (80%) were listed: Mita (26.2%), InterTel (24.1%), Behringer (15.7%), and Nam-Tai Shenzhen (14.4%). Smaller companies represent the other 20%. In the next report we should see VTech added to this list. With the exception of Mita (Japan), these companies are based in the US, Germany, and HK/China.
Mita - Customer of Jetcrown. Based in Japan, the devaluation of the yen offers opportunity for increased sales, but Mita may be difficult to keep as a customer in spite of the close relationship they've had in the past. I don't know if Mita assembly is in Shenzhen or China and this would be a factor. If Mita's assembly is in Japan...
InterTel - Customer of Jetcrown and Kwanasia. According to their reports, they are showing substantial growth. Have alliances with Motorola and some telecom companies. Growth potential good and they're not likely to be lured away from Deswell. InterTel is buying back shares due to strong cash position and low price.
Behringer - Owns a large block of Deswell stock so there's little danger of losing them. Customer of Kwanasia. It is my understanding that their sales are growing and they're expanding into new markets. Potential for future growth is good.
Nam Tai - they no longer have stock in Deswell, but there still seems to be an alliance. They have facilities in Shenzhen and should remain as customer. They have reported reduced revenue projections for this year but this is actually unpredictable as they sometimes get large one time contracts. Nam Tai is buying back shares due to very strong cash position and low price.
VTech - Per earlier post, VTech is showing substantial growth, particularly in telephone equipment. They have indicated the 'Asian Crisis' has not adversely effected their business and project continued growth in sales, particularly in the telecom division. Jetcrown PR states they are making 15 different products for them. If Deswell can expand the amount of business with VTech, it could easily replace any decline in sales to other companies. There is also the potential for VTech to also buy from Kwanasia and Kwanta.
Potential for new business - all of the above companies are strong financially and have the potential for good future growth. In recent months, there has been large number of new foreign investor business startups in South China. While some China exporters may be having problems due to the world economy, it continues to be an attractive location for business development. The number of companies expanding in the region offers new opportunities for Deswell. In addition, China's domestic market is growing.
According to the 1997 20F, operating and overhead expenses in China accounted for only 25% of total expenses so the currency devaluations would not give competition a major advantage. In China, Deswell can compete effectively due to their high quality and low cost production.
Telecommunications equipment will not be impacted as much as most other sectors. Telephone (cell, remote, standard, etc.) and telecom equipment will be needed not only in the US/Euro, but in all of the developing countries on every continent. Producing telephone and telecom equipment for VTech and InterTel, Deswell is well positioned to take advantage of the growth in this sector.
With the current customer list of growing companies and the increasing number of companies moving into South China, Deswell's opportunities for growth appear strong in spite of the economic turmoil in Asia.
FWIW,
Ron
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