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Technology Stocks : Western Digital (WDC)

WDC 163.33

+3.5%

Nov 28 9:30 AM EST

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To: Pierre-X who wrote (8165)	12/12/1997 12:52:00 AM
From: Rational	Read Replies (1) of 11057

PX: I was tempted to add to your nice story the macro-finance ramifications that SILISMURF or its banker or the banker's banker (the cebtral banker of the country) was unable/unqualified to forsee because of an aging financial system. [Finance is not like manufacturing the other stuff.] SILISMUF became very highly leveraged with government-sponsored bank borrowing and the banks raised huge amounts of capital overseas at cheap dollar-denominated rates. [Their leverage is 3:1 (debt:equity), on average as compared to US's 1:1. SLISMURF is nearly 100% debt!] When the country's currency got devalued 30 to 50%, the "cheap" cost of finance became HUGE and the banks, central banks and the country all became bankrupt. [IMF is charging 18% and higher and forcing the CB to raise rates!] Now, you need to add the labor cost to the HUGE cost of capital. The thin profit margin that SILISMURF hoped to lock in suddenly evaporated and the company has to close business because of lack of technological innovation and profitability. This is good news for US DD makers' future, very good indeed. The market is beating tech sector that depend on sales to Asia (due to currency devaluation), but US DD companies buy cheap labor there (as cheaply as SILISMURF) because plants are located there, but now have a very fair advantage because SLISMURF's cost of capital has suddenly risen, astronomically (about 3 times on 100% leverage) and technological innovation thwarted. [Why is S Korean market getting down 6% a day? Think about it!] This is the time to pick US DD sector stock as per my rational analysis. I am not a long or short in WDC, just liked to add to your nice story! Sankar

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