Greenspan speak with a little Monsec thrown in for good measure:
dbc.com
my emphasis in bold
More volatility ahead for tech stocks?
Greenspan sees drop in exports to Asia
SAN FRANCISCO (DBC) -- When Fed Chairman Alan Greenspan said he expects a "drop-off" in earnings as a result of Asia's currency woes, he struck a nerve at investment banking houses with close ties to Silicon Valley.
Analysts at firms such as Hambrecht & Quist and Nationsbanc Montgomery Securities are busy revising their expectations for tech companies with exposure in Southeast Asia, and investors can expect to see new ratings and earnings forecasts within the next week or two.
That will almost surely mean more volatility for shares of chip, computer, software and capital equipment companies.
"Our firm is assessing the exposure of a variety of technology firms to the international market, in particular Asia," said Joseph Arsenio, a managing director at San Francisco-based Hambrecht & Quist. "That assessment has been underway and it really is going to vary from company to company, depending on the equipment they manufacture and the kinds of products they source from Asia."
The weakness of some Asian currencies against the dollar may help some U.S. companies while hurting others. It will help those companies who buy components made in Asia, because those parts will be cheaper.
Weak Asian currencies also will help companies with factories in Southeast Asia, because it will cost fewer U.S. dollars to pay the workers in their local currencies. However, the strong dollar will hurt U.S. companies that sell finished goods to the Asian market, because those products will now cost more.
In his testimony to the congressional Joint Economic Committee on Wednesday, Greenspan referred to these effects, noting that the direct impacts of the weaker Asian currencies has had only a "modest" impact on the U.S. economy. "But it can be expected not to be negligible," he said, noting 16 percent of U.S. exports last year ended up in Thailand, the Philippines, Indonesia, Malaysia, Hong Kong, Korea, Singapore and Taiwan. "Thus, depending on the extent in the inevitable slowdown in growth in this area of the world, the growth of our exports will tend to be muted," Greenspan said.
The U.S. foreign investment in Southeast Asia countries, and the earnings from affiliate operations there, are smaller than their share of U.S. exports. "The share is, nonetheless, large enough to expect some drop-off in those earnings in the period ahead," he said.
Another review of tech companies is under way at Montgomery, another San Francisco firm that has helped to back some of technology's biggest players. "I think all analysts are going to have to go back and revisit their models and figure out what kind of impact they might see," said Jonathan Joseph, an analyst who tracks the semiconductor chip industry.
To be sure, many technology stocks tumbled in the past week as investors worried about declining revenue from overseas. However, many of those changes ignored the subtleties of the currency effect on individual companies.
Texas Instruments shares lost more than a fifth of their value, sliding from 127 3/4 on Oct. 21 to 101 1/8 on Tuesday. However, investors ignored the fact that 23 percent of TI's workforce is paid in Southeast Asian currencies, meaning it will now cost TI less to manufacture good there. The shares shot up 12 11/16 to 114 7/16 Wednesday as two firms raised their ratings.
"A lot of these companies, about 10 years ago, took manufacturing operations offshore to Southeast Asia because of lower wage rates," said Joseph. "Well, those labor costs in locally denominated currency just declined 50 percent in many of those countries, particularly Thailand. So they're going to see some hidden cost savings."
Intel, the world's largest chipmaker, has about 19 percent of its labor force in Southeast Asia, Joseph said.
Not all companies are that lucky. Oracle, the huge database software company, doesn't hedge against foreign currency fluctuations. And the companies that make machinery for the semiconductor factories sell a large percentage of their products into the Southeast Asian market. Companies like that are much more vulnerable to the recent economic changes.
"I would imagine there's going to be some negative impact on certain technology companies that are really net exporters to Asia, but those are few and far between," said Arsenio. "They're a sub-set of general technology."
Savvy investors shopping for bargain stocks in the aftermath of the U.S. stock correction can avoid the pitfalls by examining how the Asian currency woes will affect the company's overall performance. However, Arsenio said investors need to look beyond even those questions before jumping into a new stock.
"Part of this correction was certainly justified by some slackening in the growth rate, and part of it -- I think -- is an overreaction to international markets," he said. "As a consequence, the rebound we saw (starting Tuesday) is more a reaction to being 'oversold.' But we're still vulnerable in some sectors to a secular slowdown."
My comments:
We have already seen in the last quarter than APM's net earnings included about 5 cents per share from currency exchange gains, mostly in Malaysia. With the even greater weakness of the Ringgit this quarter, these numbers should be even more this term. Fully 80% of APM's employees appear to be in Malaysia or South Korea! Despite this, APM will likely be hit just as hard as some of these other companies; however, one would hope that its already low trailing P/E (<6) would give it some immunity from falling much further. These statements and the fact that probably supports it in regards to the semiconductor equipment companies at least makes me quite worried for almost all tech stocks, including APM and WDC, which also assembles a lot of its dd in Asia.
Hong Kong and Japan markets were down quite a bit last I looked but Malaysia and Singapore were up. |
