Market declines will strenghten video markets.................
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Stock Jitters Belie Inherent Strength of Video Markets
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The pro video industry took its lumps in last week's financial markets along with the rest of the high-tech community, largely on fears that softening Asian markets would lower sales of European and North American manufacturers.
However, cooler heads prevailed during Tuesday's rally, in part because traders realized that the major Asian markets are financially sound. Any future loss of sales from states with suddenly devalued currency - namely Hong Kong, Thailand and Indonesia - will not significantly affect most companies' bottom line. Regions that make up the lion's share of sales - North America, Europe and leading Asian nations like Japan and China - are expected to weather the market tremors with little affect on their overall economies.
"The impact is not going to be that great because most video companies are not heavily reliant on the tiger economies," said Gary Schultz, principal analyst at Multimedia Research Group, a San Jose market research firm. "They are more reliant on the Japanese and South Korean economies, which are already mature."
Leading video technology issues, like the markets in general, were hard hit on Monday's fall but then bounced back by mid-week. Among the hardest hit were computer-related firms like Hewlett Packard [HWP] and Silicon Graphics [SGI], although SGI's woes were most likely compounded by its poor third quarter results.
Sales Split
Christine Martino, marketing manager for HP's video communications division, said the division's sales are split almost evenly between Europe, the Americas and Asia, but the bulk of Asian sales are in Japan.
Geographic Sales Breakdown
x $1 million
* Note: Figures represent total company sales, not just video products
N.A
Europe
Other
Harris 3,046
-
574
HP 24,304
14,895
13,597
Scitex 444
178
-
SGI 1,927
936
799
Sony 12,194
7,008
28,256
Tek 1,027
483
169
Source: Bloomberg
"Most of our major customers have fixed capital budgets, and no one has yanked them yet," she said. "Even long-term deals are unaffected."
HP dropped 4 3/8 to 59 1/2 on Monday, but rebounded to 63 1/4 at Tuesday's close.
At Avid Technology [AVID], which lost 3 1/8 to close at 26 1/8 on Monday but only regained 5/8 on Tuesday, Vice President of Channel Development Matt Danilowicz said that "current business conditions will make it more difficult" to sell equipment in some areas, but the company is confident Asia will continue to be robust.
"(Broadcast) industries are still dominated by government enterprises and investments," he said. "The TV infrastructure in China is still controlled by the Chinese government. They need to expand that infrastructure.
"This is probably more than a short-term blip," he added. "It is a reasonably major change in the business landscape in Asia."
Good or Bad?
But even in areas hardest hit by the slide, there is disagreement as to exactly how severe the impact will be on the video industry.
"It certainly does appear that they are headed for more difficult times," said James Drury, a market analyst with Wall Street firm Bear Sterns. "Hong Kong's Hang Seng index is down 40 percent over the last few sessions. That will have a semi-permanent business impact over there."
"I don't think Hong Kong will close its doors just because the currency drops," said Schultz. "There will still be a lot of film and video production over there because there is a ready market for the programming."
"I don't see any correlation (between equipment purchases and stock prices)," said Richard Chu of Boston firm Cowen & Co. "We're no looking at budgets that are tied to equity market values. These are independent phenomenon. There is nothing you want to read into the spending outlook for video systems and servers."
There are even some industry observers who expect some good to come out of the market fluxuations. If central banks in North America and Europe feel they have to lower interest rates to stave off an economic downturn, that will help a number of companies to pare down their debt.
"Broadcast companies have a high amount of debt on their books," said Lawrence Harris, an equity analyst with Jackson Partners & Associates of New York. "This could lower their borrowing costs."
Even if there is a general downturn in the U.S., the rollout of digital video in the broadcast and cable markets could minimize the impact on video manufacturers.
Even as the markets quieted down on Tuesday, most analysts said to expect mini fluxuations over the next few weeks - almost like the aftershocks following a major earthquake. Of course, if the market truly goes south and we see another 20%-plus drop like in 1987, there will almost certainly be economic recessions in the world's leading economies producing sales drops across a range of technology sectors.
At our deadline, however, the overriding impression was that Monday's drop was an emotional reaction to bad news in Asia.
"It probably dashed expectations more than it dashed real business," said Avid's Danilowicz. (Avid, 508/640-3541; HP, 408/553-3945; Jackson, 212/251-9600; Bear Sterns, 212/272-2000; MRG, 408/524-9767) |
