Meeting notes from timmooney posted on Yahoo!:
"To Dennis, Paul, Ron, Thread, (someone please link this to SI thread)
As a shareholder I attended the recent meeting. Here are some notes. Before the meeting Mr. Lau and Mr. Lam were talking with all present. I spent about ten minutes talking with Mr.Lau. He told me (paraphrasing) "about the stock price,just be patient.
Right now in HK and China there are about 2-3 of companies that can maintain flat revenues and margins in 1998 because of the Asian turmoil, we aim to be one of them." I said I was more concerned with a loss of margins because of competitive pressures than with a temporary loss of sales and he assured me that margins have held up so far, though under pressure especially recently. He assured me twice with considerable emphasis that the dividend is safe. I also talked with Dickson Lam about Behringer's branded sales in PRC. Distribution is a major problem in the People's republic (it's archaic)and it is a tough sell against brand preference for Sony etc. Both men seemed very straightforward. I was very impressed with Mr. Lau's integrity.
The Meeting
Mr. Lau's presentation began stating that there had been some decrease in sales because of increased competition with countries that have devalued. The reduction of sales to Mita is because Mita wishes to reduce their inventory channel to a minimum. Mita Japan's bankruptcy has been decided. Resolution is to be by acquisition of Mita Japan by Kyocera(sp?). Strategy dictates ownership transfer with low inventory. Mita HK, Mita US, and Mita Europe, the companies that represent the bulk of Deswell's Mita sales remain profitable. Deswell expects no reduction of Mita sales after the 3 month period other than from normal fluctuations. Mita is not a payables problem. Mr. Lau also stated that cash funds are 90% US$, 10% HK$. Also, Kwanasia has not completed the move to the new facility - by year end.
Subjects addressed from Shareholder questions
Kwanasia is currently at 70% of the old capacity, while being moved into a facility that is 220%(?)larger. $2-2.5 million has been spent on the new facility and fitout. No new machinery to increase capacity has been bought or is planned for Kwanasia until needed. Mr Lau admitted that the decision to move was a bit premature looking with hindsight at recently deteriorating macroeconomic conditions. Rent on the new facility is being renegotiated with the Chinese, as is the rent on all facilities.
Because of the importance of success stories like Deswell and the Chinese intention to promote exports to offset their unwillingness to devalue, Mr. Lau believed Deswell has some negotiating power.
Jetcrown is at 80-85% capacity versus 99% capacity last year.
Cash in $US at about US money market rates, HK funds at 15%.
Mr. Lau does not expect China to devalue because it is not in their interest to, because among other things it would cause inflation.(cont)
Meeting Notes continued:
Behringer increased holdings by 100,000 shares recently at $16-17
It was pointed out that no insider has sold any of their core positions, which is a vote of confidence in the company.
Deswell is doing all they can to develop new customers to reduce their dependence on their few major customers. Mr. Lau went into a detailed description of the timeframe and procedure for getting new accounts which made sense to me based on my career in industrial sales. Minimum time frame to establish new sales is 18 months, usually 3 years. Almost never will a manufacturer contract with a vendor for anything but a new product. Sometimes you can lose a foot in the door with a new account if their product you make fails.Deswell provides alot of expertise and service which is the basis of growing longterm relationships. Deswell tries to get new customers that are very large and very small. They like to help the small ones become big. For example, in the 8 (?) years Deswell has been manufacturing for Intertel, Intertel has gone from a $1 stock to a $60 stock (and a big customer).
After the meeting I heard Mr. Lau say that phones for Vtech go out with other labels on them also. Sony is one brand that Deswell makes for Vtech.
I was told by Sven Kaplun, a hedge fund manager who formerly owned Deswell that Mr. Lau that there is $26 million in cash.
He was seriously considering buying DSWLF again but didn't think there was a rush as tax loss season was coming up.(Most funds close their tax year at the end of October....)" |
