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Technology Stocks : Deswell Industries (DSWL)
DSWL 3.410+3.6%Nov 5 3:58 PM EST
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To: Ron Bower who wrote (1162)1/20/1999 8:44:00 AM
From: jmt  Read Replies (2) of 1418
 
Ron:

Many months ago I suggested Deswell do something with their cash. They have proven abilities to strategically grow and manage their business, and this ability would likely transfer to other lines of business. Currently it is half business, half money market conduit.

Deswell was given the opportunities provided with a strong currency to acquire companies at a discount in neighboring countries. As the currency and economies of some of these countries has rebounded, that opportunity is not as attractive. And the cash is still there.

Any company with that type of cash on its balance sheet is an attractive target. what is disturbing is that the more cash the company has, the lower the buyout price would be. Companies are priced at takeout in relation to future cash flows, which is of course a function of earnings growth. While earnings may be projected to grow at double digit rates, the cash balances, which dwarf annual earnings, will grow at 4%-5%.

So while some cash may be a cushion during slow economic periods, to much cash is a detriment. It means this management cannot effectively put this cash to use at any higher than money market growth rates.

If Deswell can't use it to diversify, then return it to the shareholders so they can.

jmt
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