Barron's Loves to Kick you when you're Down...
Barron's left-coaster Jaye Scholl did a revealing piece on a little
Miami-based PC maker called
<a href="/inap-bin/bb?sym=vtch&page=15" onMouseOver="window.status=(' Stock quote on VTCH');return true" onMouseOut="window.status=('');return true">Vitech
America</a>. Vitech makes and sells its wares exclusively in Brazil,
and over the last few years has been racking up impressive growth. As Jaye
pointed out, though, Vitech has a long history of legal entanglements,
including a continuing dispute with IBM, and has the backing of an
underwriter, H.J. Meyers, with a lengthy regulatory history. The stock
initially slumped following Jaye's story, but then came roaring back. (Last
week, the shares traded for about 16, roughly where they were before our
story ran.) Now, Vitech has new reasons to worry.</p>
<p>The big problem is that Brazil's economy is stumbling badly. Though
President Fernando Henrique Cardoso last week said Brazil has no need for
an IMF loan to bolster its sagging currency, there is nonetheless growing
fear the country is headed for a recession. Brazilian interest rates are
soaring, while the government plans to increase income taxes and cut public
spending. In filings with the SEC, Vitech has projected annual growth in
Brazilian PC sales of about 30%, but that now seems unlikely. According to
Dataquest, Brazilian PC sales in the third quarter actually fell 4% from a
year earlier.</p>
<p>Meanwhile, the dynamics of the Brazilian PC market have been shifting
against Vitech. Luis Anavitarte, a senior analyst at San Jose-based
Dataquest, says sales of brands sold only in Brazil have been losing ground
to multinationals like
<a href="/inap-bin/bb?sym=cpq&page=15" onMouseOver="window.status=(' Stock quote on CPQ');return true" onMouseOut="window.status=('');return true">Compaq
Computer</a>, IBM, Hewlett-Packard and Acer, as the big boys cut
prices to keep up with the locals. In the third quarter, for instance,
sales of Compaq computers grew 75% in Brazil, despite the slight drop in
overall demand. Compaq now has 16% of the Brazilian market, more than twice
the No. 2 competitor, a Brazilian manufacturer called Itautec. Vitech has
about 4% market share, ranking eighth. Pricing pressure comes at a bad time
for Vitech -- the weakening local currency squeezes margins because PC
makers pay for parts in dollars, not reals. Vitech, in short, is selling
the wrong product in the wrong market at the wrong time.</p> |
