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To: Cameron Dorey who wrote (86287)	10/31/2000 9:46:48 AM
From: tonyt	Respond to of 97611

Blame it on the euro By Dan Briody Redherring.com, October 31, 2000 If you listened to the litany of reasons offered by executives in recent weeks why one American technology company after another has reported disappointing third-quarter results, you might think that Europe was mired in a full-scale depression, replete with failing banks and food-rationing lines. Europe, of course, is doing just fine, and investors should be wary of companies placing the blame on the year's favorite scapegoat: the euro. The euro has struggled against the dollar as of late, currently hovering around an all-time low of just 84 cents, and as a result several technology companies that issued sales or earnings warnings in the last month are pointing the finger across the Atlantic, including Intel (Nasdaq: INTC), Dell Computer (Nasdaq: DELL), and IBM (NYSE: IBM). But experts say these companies should be blaming their treasury managers for their currency woes. After all, it's not as if the weak euro sneaked up overnight, casting all financial forecasts into sudden obsolescence. The euro just happened to be the excuse du jour, the most convenient suspect in a high-profile investigation. "It's easy because the euro is so visible," says Subodh Kumar, chief investment strategist at CIBC World Markets in Toronto. "And besides, in the tech sector, you can't really blame oil prices." NOT-SO-SUDDEN IMPACT There appear to be two main issues with the weak euro. First, many U.S. companies record revenue from Europe in euros but then convert these sales figures to U.S. dollars for their quarterly reports. So the lower the value of the euro, the lower the dollar amount reported in U.S. dollars. Second is the psychological impact that the languishing euro has on customers in Europe. Dell chairman and CEO Michael Dell claimed during a conference call earlier this month that the euro's weakness has made companies less inclined to spend on technology. This second aspect may in fact be true. But a company that blames currency fluctuations for weak sales should raise a red flag in any investor's mind for a number of reasons. Any company worth its salt has a number of ways to hedge against this kind of volatility in exchange rates. The easiest way is to buy insurance against it. In addition, truly global companies build up a natural hedge against currency fluctuations, by spreading their sales around enough so that one currency will not impact them disproportionately. "You have to wonder why [some companies] didn't hedge, because there was plenty of time along the way when they could have," says Marc Chandler, chief currency analyst at Mellon Bank. "Companies are not helpless in fluctuating currencies. But if you listen to these U.S. companies, you only hear about it when the currency situation hurts them, never when it helps them. I'll listen to these excuses when they acknowledge that this stuff cuts both ways." After sliding steadily more or less since its introduction, it's hard to imagine the euro suddenly becoming a new problem for companies doing business in Europe. Mr. Chandler also says that investors should remember to ask companies to quantify their results, detailing what the numbers would have been if the euro had not been weak, thereby holding them more accountable. "The euro has been going down for two years, so I have to wonder if these guys are keeping their eye on the ball," says Mr. Kumar. GROWING PAINS? It is likely that some of the companies that blamed Europe for their woes were simply unprepared for this type of global phenomenon. Dell, for example, is relatively new to foreign markets, so it could hide behind inexperience as an excuse. "It may be simply part of the maturation process of becoming an international company," says Mr. Kumar. "But as an individual investor, you should think about whether you want to be in a company that makes these kinds of mistakes." For old-school companies like IBM and Intel, it's harder to understand their lack of foresight. And the scary thing is that the European blame game is just getting started. As fourth-quarter numbers start to disappoint, the weak euro will become an even more conspicuous target. But market investors concerned with fluctuating currencies are playing the wrong game -- exchange rates should be the furthest thing from one's mind when deciding to invest in a technology company