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Technology Stocks : Deswell Industries (DSWL)
DSWL 3.650-1.5%9:35 AM EST
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To: j rector who wrote (714)5/6/1998 11:43:00 AM
From: kolo55  Read Replies (2) of 1418
 
Unit prices dropped because component costs dropped.

Nam Tai's unit prices dropped, yet their profit margin held up. How is that possible? Well, they are simply passing through the lower component costs to their customers as lower prices. The same thing is probably happening to Deswell, although to a lesser degree. The lower cost of resin is probably being passed on to Deswell's customers as lower unit prices. This doesn't mean that Deswell's profits won't hold up.

But I think that the impact on Nam Tai's prices and costs was much more severe than the impact on Deswell. The current price drops have been most severe in electronic components, which are almost certainly being sold well below real costs in Asia at this time. Asian component manufacturers have pretty much given up on recovering the capital they invested in some new plants(fixed costs), and are essentially selling a lot of components at their variable cost. So companies like Nam Tai, who buy a lot of components, are having to drop their own prices, passing the cost savings along to the customer, to remain competitive.

Deswell's plastic operations are in a business marked by short supply and shouldn't be impacted much. The circuit board business is probably seeing some pricing pressure. And the assembly biz probably would see the same trends as Nam Tai, except for the fact that Deswell is expanding their operations there rapidly to service new customers.

Well, these are just my opinions.
Paul
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