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Technology Stocks : Deswell Industries (DSWL)

DSWL 3.714

+0.4%

Nov 21 9:30 AM EST

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To: j rector who wrote (575)	3/23/1998 2:47:00 PM
From: Ron Bower	Read Replies (1) of 1418

j, Further reading and thoughts on the announced expansion. The PR states that Kwanasia's "production capacity to be increased by 120%" and "expansion is for assembly". It appears they are getting a lot of interest from OEMs since they added assembly. This announcement isn't as big as it might appear in that assembly hasn't as yet been a major portion of revenues. As they increase assembly, we will likely see much higher revenue growth, but lower margins. The earnings growth will come from better utilization and increases in Jetcrown and Kwanta, but overall earnings growth will not in be proportion to revenue because of the 50.1% position in Kwanasia and the lower margins from the assembly work. I don't think that Deswell is actually getting sales equal to the revenues they report. Deswell is a holding company with subsidiaries. Sales from Jetcrown and Kwanta to Kwanasia would show up in the revenues of Jetcrown and Kwanta, and also be a part of Kwanasia's revenues. The overall revenues would be overstated and the margins greatly understated. My thinking, Ron

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