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Technology Stocks : Texas Instruments - Good buy now or should we wait? -- Ignore unavailable to you. Want to Upgrade?

To: pat mudge who wrote (2644)	12/24/1997 4:24:00 PM
From: Scott Moody	Respond to of 6180

[From Motely Fool] An Investment Opinion by Alex Schay FOOL PLATE SPECIAL: Korean Woes Continue ~~~~~~~~~~~~~~~~~~~~~~~ Newly elected South Korean President Kim Dae-jung was quoted in the Tuesday edition of a leading Korean daily Chosun Ilbo as saying, "We don't know whether we would go bankrupt tomorrow or the day after tomorrow. I can't sleep since I was briefed... I am totally flabbergasted.'' Apparently so were Korean and international investors at the candid nature of the president's remarks. The benchmark South Korean "Korea Composite Index" nose-dived 29.70 to 366.36, or 7.5%, reflecting the dramatically deteriorating economic situation in Korea. Compounding the bad news was a downgrade of the country's foreign-currency debt rating to junk status by Standard & Poor's and Moody's Investors Service. In addition, Moody's lowered its rating for Korean bonds and twenty Korean banks, as well as for Pohang Iron & Steel (NYSE: PKX), down $1 13/16 to $16 7/8, and Korea Electric Power Corp. (NYSE: KEP), off $1 1/8 to $9 3/8. As a result of the downgrades as well as growing concern that foreign lenders were reducing their dollar-denominated loans to Korean companies (which triggers a surge in demand for dollars), the South Korean won dropped 12.5% to a record low of 1,961 won per dollar (off 57% this year). Returning to questions of national self-interest, what does this mean for U.S. companies? The bottom line is that without stability in Korea's currency and money markets, few Korean companies can make money. An example of a company that is watching the developments in Korea with a keen eye is dynamic random access memory (DRAM) and digital signal processor (DSP) maker Texas Instruments (NYSE: TXN), which gained $2 1/16 to $45 7/16 last Friday after investors assessed the possibility that Korean DRAM makers might have to cut capital expenditures down the road. The reason investors are excited is because normally in a commodity business like DRAM, companies have to make improvements in their manufacturing processes to keep costs low and maximize profitability. The goal of any commodity company is to become the vaunted low-cost producer, which maximizes its return on capital. If Korean companies cannot invest, they become less competitive, which helps their better-financed and better-run overseas competition. In a commodity business, the low-cost producer can afford to reduce prices and grab market share at the expense of other, less efficiently run players. Normally those competitors quickly make similar capital expenditures to cut their costs and remove that advantage. They match the lower prices, and then the whole cycle continues again. The wrinkle this time is that Korean companies in a variety of commodity businesses may not be able to make capital improvements that are necessary to stay competitive. Before now these companies used cheap, government-subsidized loans to prop them up when they could not make money, essentially subsidizing their irrational pricing strategies that had them selling product at break-even just to take market share. Now these same companies are scrambling to buy dollars to pay off dollar-denominated debt and finding that the Korean banks they know and love are not interested in lending them any more money. It was because some Taiwanese and Korean companies were able to price products below the costs of production (thanks in part to an ability to secure easy credit even while losing money) that DRAM pricing for 16 megabit chips fell from $47.50 in January 1996 to about $6 today. The possibility that Korean companies, like Samsung, may have their capital expenditures restrained has some U.S. companies that compete in the same capital intensive businesses doing back-flips. Good luck TXN and your shareholders.. TMF Spirit, Chat hostess every market day.... TheMotleyFool