Peter,
Thank you for a good article. At the risk threaders didn't read the foreign exchange article, it follows:
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The doomsday theory
By Jerry Fleming
IMF-dictated reforms lead to curtailment of a large part of Korean capital expansion plans. The potential for Korean bankruptcies leads to financial losses for equipment firms, such as occurred last spring when the Thai-based SubMicron memory factory was canceled. Forget profits, Korean chipmakers happy to book revenues, do so by aggressive price cuts. A 51% decline in the South Korean won gives them enough wiggle room. For example, Samsung can now sell a 16 MB chip at 4,500 won or $2.50. ($1=1,800 won), versus 2,300 won when the exchange rate was 1:800 a few months ago. The Korean-induced pricing pressure severely lowers the profitability of Japanese, Taiwanese and U.S. chipmakers. Korean price cuts lead to a price war as Japanese, Taiwanese and U.S. chipmakers compete to match Korean chip prices. Kiss profits good-bye. Weak Asian currencies drive down the value of the yen to 140-to-150 to the dollar resulting in weak sales and earnings for U.S. firms' Japanese subsidiaries (which sell in yen). The products of Japanese semiconductor equipment makers like Advantest become competitive. Wall Street estimates and ratings will be reduced in the coming weeks, since many of the equipment makers are rated "buy." Applied Materials, which denies seeing any cancelation or push outs, is rated a "buy" or a "strong buy" by 21 of 27 firms surveyed by research firm IBES. Only six analysts have a "hold" rating on the stock. |
