Expect a big jump tommorow on stock price.
U.S. technology firms are rebounding in Asia, which could prompt a broader recovery for other U.S. companies. Oracle, Hewlett-Packard, Dell and Microsoft recently reported double-digit increases in Asian revenue.
U.S. Tech Firms' Asia Rebound
May Point to Broader Recovery
By SCOTT THURM, DARREN MCDERMOTT and JAY SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
Two years after Asia's financial crisis decimated the local operations of many
U.S. companies, high-technology companies are experiencing a powerful
resurgence that is lifting profits and may presage a broader recovery for other
U.S. multinationals.
Recently, Oracle Corp., Hewlett-Packard Co., Dell Computer Corp. and
Microsoft Corp. reported double-digit increases in Asian revenues. Analysts
are hoping other companies report similar results.
It is too early to know whether the sharp turnaround evident at
high-technology companies is occurring widely in other industries, although a
handful of industrial and consumer-products companies have reported rising
sales to Asia. Many companies won't report second-quarter financial results
for several weeks, and some are reluctant to forecast results. With economic
recovery still highly tentative in Asia -- with much of the basic corporate
restructuring still undone -- some analysts worry there could be more pain
ahead, not less. Moreover, even double-digit percentage gains in sales barely
put many companies operating in Asia back to where they were two years
ago.
Twice as Fast
Still, it is impossible to ignore the rebound in sales by high-tech companies in
Asia. Take Oracle, whose disappointing earnings in December 1997 put the
tech world on watch that high-growth expectations for Asia would have to be
put on hold. Oracle's stumble sent tech stocks reeling. Last week, the world's
second-largest stand-alone software firm told a different story: Asian revenue
soared 47% in the quarter ended in May, more than twice as fast as the rest
of the company's sales, to exceed precrisis levels.
Hewlett-Packard
last month
reported record
orders in Asia,
evident in
products from
printers to
scientific
instruments and
in countries as
diverse as South
Korea and
Singapore. Dell
Computer sales
increased twice
as fast in Asia as in the rest of the world during its most recent quarter.
Microsoft's Asia sales are 40% higher than before the crisis. Applied
Materials Inc. says South Korean orders for its chip-making machines have
more than doubled in the past year. The American Electronics Association
says high-tech exports to Asia, which fell 11.6% last year, increased 6.4% in
the first quarter, compared with the year-earlier period.
Morgan Stanley economist Richard Berner predicts U.S. exports are "on the
cusp of a major boom." Coming atop strengthening industrial-production data
around the globe and seemingly boundless consumer spending at home, the
firm recently raised its forecast for U.S. gross-domestic-product growth in the
second quarter to 4%.
The stronger-than-expected Asian sales are helping to boost tech profits.
Operating income from tech firms in the Standard & Poor's 500-stock index
increased 41% in the first quarter, compared with the same period last year,
according to Morgan Stanley Dean Witter, and more than four times the 9.6%
increase in the S&P 500 as a whole.
Mr. Berner explains the clear trend in high-tech sales and his predictions it
soon will spread to other sectors as a combination of factors. U.S. firms have
used superior efficiency to cut prices and expand global market share. Less
efficient companies in Asia, Latin America and elsewhere, backed against the
wall, are buying the sort of high-tech capital equipment that can make them
more efficient.
Booming Domestic Sales
The technology sector's rebound in Asia comes amid booming domestic
sales that together are leading what some analysts expect to be an amazing
second quarter for corporate profits. Chuck Hill, research director at First Call,
which tracks earnings, expects quarterly profits for the S&P 500 could be up
15% from a year ago, the strongest performance since before the Asian
crisis.
Mr. Hill says he expects commodities companies and low-tech
capital-equipment makers, which tend to perform in a cyclical fashion, will
follow high tech into growing profitability later this year as the global economy
continues to heal.
In general, Asia seems to want America's computer chips, not its potato
chips. But executives are hopeful restructuring and investment in technology
will facilitate broader growth. Some of the countries hit the hardest and
earliest, such as Thailand and South Korea, are showing encouraging signs of
industrial activity, plus a hint of consumer demand.
But the story is more complicated elsewhere. China's inconvertible currency
and relatively closed markets insulated it from the financial panic, but the
region's troubles have kept China's own economic growth slower than normal.
Japan's recovery is still in its early stages at best, so most U.S. firms say
they haven't seen significant improvement yet. According to official figures
released Monday, Japan imported goods valued at 592 billion yen ($4.85
billion) from the U.S. in May, down 20% from the year-earlier Month.
Sales Pick Up
No Asian country was hit harder by economic and fiscal crisis than Indonesia,
but a surprising number of U.S. companies say their local operations are
recovering -- if not thriving -- as the turmoil ebbs.
Take the local units of Philip Morris Cos.' Kraft Foods Inc. and Johnson &
Johnson Inc. The collapse of Indonesia's currency, the rupiah, against the
dollar drastically cut Indonesian exports in 1998, and cut into Kraft's imported
coffee, cheese and candy sales. Now, Kraft says sales are picking up as the
rupiah strengthens and its distribution network improves.
Johnson & Johnson says 1999 will be the best in its 25-year history in
Indonesia. The weak rupiah hurt sales of baby-, skin- and hair-care products
last year, but sales have picked up considerably during the first six months of
1999, company executives say.
General Electric Co.'s Indonesia GE Lighting unit says it expects sales of
light bulbs and lamps to rise 18% in its fiscal year ending in November from
the year earlier, also due to the strengthening rupiah. Indonesian consumers
and business cut back on power usage during last year's crisis. But a smooth
election and improving sentiment has turned things around, said the
company's senior manager, Hanry Satriago.
The quick rebound for high tech surprises industry analysts and the
companies themselves. Market researcher International Data Corp. had been
predicting personal-computer sales in Japan to increase 6% in the first
quarter; they leaped 30%. For the rest of Asia, PC sales grew 25%, nearly
double IDC's earlier 14% estimate. For the first time in two years, sales grew
in every Asian country.
Lopsided Recovery
"We do a lot of surveys there and we still didn't get that it was going to be this
phenomenal," says Lisa Cosmas, manager of IDC's worldwide PC tracker
program. Derek Williams, Oracle's Singapore-based senior vice president for
Asia-Pacific, says the rebound is "six months to a year ahead of what I
thought was possible."
The Semiconductor Industry Association recently upped its forecast for global
chip sales this year, partly because sales to Asia are now expected to jump
16%, rather than 12% in its previous forecast. "For the length of our forecast,
Asia is the strongest market," says Doug Andrey, the group's director of
information systems.
The disparity between high-tech and other industries can be seen in the
lopsided recovery in the Asian operations of Millipore Corp., a maker of
scientific and technical instruments that was hammered last year by the
financial crisis in Asia and a downturn in the semiconductor industry. "We
were expecting [sales] to flatten out at the lower levels of 1998," says
Millipore Chairman William Zadel. "We've been pleasantly surprised that it's
been better than that."
But even if they aren't cheering yet, many low-tech U.S. companies say they
believe the worst is behind them in Asia. First-quarter sales figures in many
cases showed mild rebounds. Minnesota Mining & Manufacturing Co., which
like Oracle came to be a bellwether for the woes of U.S. companies in Asia,
saw its sales volume from the Asia-Pacific region rise about 7% in the first
quarter, while dollar-sales revenue rose about 11%. But the company remains
well below its 1997 Asian-sales levels of $2.63 billion.
At Eastman Kodak Co., spokesman Paul Allen is reserving judgment. "We
did see a slight uptick in our first quarter and it's kind of hard to tell if that's a
rebound or not," he says. "The second quarter will confirm the trend."
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