U.S. Tech Firms' Asia Rebound May Point to Broader Recovery (WSJ, 6/24/99)
By SCOTT THURM, DARREN MCDERMOTT and JAY
SOLOMON
Staff Reporters of THE WALL STREET JOURNAL
Two years after Asia's financial crisis decimated the
local operations of many U.S. companies,
high-technology companies are experiencing a powerful
resurgence that is lifting profits and may presage a
broader recovery for other U.S. multinationals.
Recently, Oracle Corp., Hewlett-Packard Co., Dell
Computer Corp. and Microsoft Corp. reported
double-digit increases in Asian revenues. Analysts are
hoping other companies report similar results.
It is too early to know whether the sharp turnaround
evident at high-technology companies is occurring
widely in other industries, although a handful of
industrial and consumer-products companies have
reported rising sales to Asia. Many companies won't
report second-quarter financial results for several
weeks, and some are reluctant to forecast results. With
economic recovery still highly tentative in Asia -- with
much of the basic corporate restructuring still undone --
some analysts worry there could be more pain ahead, not
less. Moreover, even double-digit percentage gains in
sales barely put many companies operating in Asia back
to where they were two years ago.
Twice as Fast
Still, it is impossible to ignore the rebound in sales by
high-tech companies in Asia. Take Oracle, whose
disappointing earnings in December 1997 put the tech
world on watch that high-growth expectations for Asia
would have to be put on hold. Oracle's stumble sent tech
stocks reeling. Last week, the world's second-largest
stand-alone software firm told a different story: Asian
revenue soared 47% in the quarter ended in May, more
than twice as fast as the rest of the company's sales, to
exceed precrisis levels.
Hewlett-Packard
last month
reported
record
orders in
Asia, evident
in products
from printers
to scientific
instruments
and in
countries as diverse as South Korea and Singapore. Dell
Computer sales increased twice as fast in Asia as in the
rest of the world during its most recent quarter.
Microsoft's Asia sales are 40% higher than before the
crisis. Applied Materials Inc. says South Korean orders
for its chip-making machines have more than doubled in
the past year. The American Electronics Association
says high-tech exports to Asia, which fell 11.6% last
year, increased 6.4% in the first quarter, compared with
the year-earlier period.
Morgan Stanley economist Richard Berner predicts U.S.
exports are "on the cusp of a major boom." Coming atop
strengthening industrial-production data around the globe
and seemingly boundless consumer spending at home,
the firm recently raised its forecast for U.S.
gross-domestic-product growth in the second quarter to
4%.
The stronger-than-expected Asian sales are helping to
boost tech profits. Operating income from tech firms in
the Standard & Poor's 500-stock index increased 41% in
the first quarter, compared with the same period last
year, according to Morgan Stanley Dean Witter, and
more than four times the 9.6% increase in the S&P 500
as a whole.
Mr. Berner explains the clear trend in high-tech sales
and his predictions it soon will spread to other sectors
as a combination of factors. U.S. firms have used
superior efficiency to cut prices and expand global
market share. Less efficient companies in Asia, Latin
America and elsewhere, backed against the wall, are
buying the sort of high-tech capital equipment that can
make them more efficient.
Booming Domestic Sales
The technology sector's rebound in Asia comes amid
booming domestic sales that together are leading what
some analysts expect to be an amazing second quarter
for corporate profits. Chuck Hill, research director at
First Call, which tracks earnings, expects quarterly
profits for the S&P 500 could be up 15% from a year
ago, the strongest performance since before the Asian
crisis.
Mr. Hill says he expects commodities companies and
low-tech capital-equipment makers, which tend to
perform in a cyclical fashion, will follow high tech into
growing profitability later this year as the global
economy continues to heal.
In general, Asia seems to want America's computer
chips, not its potato chips. But executives are hopeful
restructuring and investment in technology will facilitate
broader growth. Some of the countries hit the hardest
and earliest, such as Thailand and South Korea, are
showing encouraging signs of industrial activity, plus a
hint of consumer demand.
But the story is more complicated elsewhere. China's
inconvertible currency and relatively closed markets
insulated it from the financial panic, but the region's
troubles have kept China's own economic growth slower
than normal. Japan's recovery is still in its early stages
at best, so most U.S. firms say they haven't seen
significant improvement yet. According to official
figures released Monday, Japan imported goods valued
at 592 billion yen ($4.85 billion) from the U.S. in May,
down 20% from the year-earlier Month.
Sales Pick Up
No Asian country was hit harder by economic and fiscal
crisis than Indonesia, but a surprising number of U.S.
companies say their local operations are recovering -- if
not thriving -- as the turmoil ebbs.
Take the local units of Philip Morris Cos.' Kraft Foods
Inc. and Johnson & Johnson Inc. The collapse of
Indonesia's currency, the rupiah, against the dollar
drastically cut Indonesian exports in 1998, and cut into
Kraft's imported coffee, cheese and candy sales. Now,
Kraft says sales are picking up as the rupiah strengthens
and its distribution network improves.
Johnson & Johnson says 1999 will be the best in its
25-year history in Indonesia. The weak rupiah hurt sales
of baby-, skin- and hair-care products last year, but sales
have picked up considerably during the first six months
of 1999, company executives say.
General Electric Co.'s Indonesia GE Lighting unit says it
expects sales of light bulbs and lamps to rise 18% in its
fiscal year ending in November from the year earlier,
also due to the strengthening rupiah. Indonesian
consumers and business cut back on power usage during
last year's crisis. But a smooth election and improving
sentiment has turned things around, said the company's
senior manager, Hanry Satriago.
The quick rebound for high tech surprises industry
analysts and the companies themselves. Market
researcher International Data Corp. had been predicting
personal-computer sales in Japan to increase 6% in the
first quarter; they leaped 30%. For the rest of Asia, PC
sales grew 25%, nearly double IDC's earlier 14%
estimate. For the first time in two years, sales grew in
every Asian country.
Lopsided Recovery
"We do a lot of surveys there and we still didn't get that
it was going to be this phenomenal," says Lisa Cosmas,
manager of IDC's worldwide PC tracker program. Derek
Williams, Oracle's Singapore-based senior vice
president for Asia-Pacific, says the rebound is "six
months to a year ahead of what I thought was possible."
The Semiconductor Industry Association recently upped
its forecast for global chip sales this year, partly
because sales to Asia are now expected to jump 16%,
rather than 12% in its previous forecast. "For the length
of our forecast, Asia is the strongest market," says Doug
Andrey, the group's director of information systems.
The disparity between high-tech and other industries can
be seen in the lopsided recovery in the Asian operations
of Millipore Corp., a maker of scientific and technical
instruments that was hammered last year by the financial
crisis in Asia and a downturn in the semiconductor
industry. "We were expecting [sales] to flatten out at the
lower levels of 1998," says Millipore Chairman
William Zadel. "We've been pleasantly surprised that
it's been better than that."
But even if they aren't cheering yet, many low-tech U.S.
companies say they believe the worst is behind them in
Asia. First-quarter sales figures in many cases showed
mild rebounds. Minnesota Mining & Manufacturing Co.,
which like Oracle came to be a bellwether for the woes
of U.S. companies in Asia, saw its sales volume from
the Asia-Pacific region rise about 7% in the first quarter,
while dollar-sales revenue rose about 11%. But the
company remains well below its 1997 Asian-sales
levels of $2.63 billion.
At Eastman Kodak Co., spokesman Paul Allen is
reserving judgment. "We did see a slight uptick in our
first quarter and it's kind of hard to tell if that's a
rebound or not," he says. "The second quarter will
confirm the trend." |
