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Technology Stocks : Ascend Communications (ASND) -- Ignore unavailable to you. Want to Upgrade?

To: rag2rag who wrote (30241)	1/13/1998 8:03:00 PM
From: Glenn D. Rudolph	Respond to of 61433

ASIA-Outlook clouded for U.S. technology companies Reuters Story - January 13, 1998 18:44 %BUS %ENT %US %DPR %ELI %FCAST %TRD %CORA %KR MOT INTC MSFT ORCL ATML LSCC FDC NDC IBM V%REUTER P%RTR By Richard Melville NEW YORK, Jan 13 (Reuters) - With the possible exception of the financial services industry, no sector's fortune is linked as closely to Asia's economic health as technology's. A prolonged slump in that region poses many risks for U.S.-based tech companies, including subdued demand for U.S. exports and pricing pressures that arise as Asian currencies weaken and allow companies based there to cut prices. Because of the tech sector's close links to Asia, investors at times have appeared almost indiscriminate in dumping shares during the economic crisis, in an effort to protect the vast gains they have accrued over the past three years. The effects of the slowdown have already surfaced in earnings reports from several companies, most recently Motorola Inc. . Late Monday, the computer-chip and communications company reported earnings that fell short of Wall Street estimates and warned that Asia's crisis would continue to depress results. "We are still facing challenges in the near term, as we expect the economic conditions in certain markets in Asia that affected fourth-quarter results to continue for at least the first half of 1998," Motorola Chief Executive Christopher Galvin said in a statement. Sentiment in the stock market has turned so fearful over Asia at times that even the mightiest tech stocks have been dragged down. The list includes the likes of Intel Corp. , whose chips go into the vast majority of personal computers, and Microsoft Corp. , whose Windows operating software is just as ubiquitous. The declines have reflected a quick adjustment on Wall Street, where investors appear to have divided the universe of stocks into broad groupings based on exposure to Asia. "The basic fact is there are some very nervous investors," said Robert Froehlich, chief investment strategist at Kemper Funds. "That means you can be the bluest of the blue chips or the highest flier in your industry and still get hit." There have already been some surprises, as in the case of Oracle Corp. , the leader in database software. Oracle's shares were dealt a heavy blow in December after reporting weak earnings for the quarter ended Nov. 30. In Oracle's case, Asia represented only about 15 percent of revenues, but that market's contribution had been expanding so rapidly that Wall Street had come to count on its growth. "Asia was growing at 50 percent for us as recently as a year ago, and now it has gone from 50 percent to negative," Oracle Chief Executive Larry Ellison said in an interview on Friday. "It has hurt us, but it's hurt everybody." Meanwhile, the market has soundly thrashed the stocks of U.S. companies that sell equipment or components to or compete with Asian chip makers -- several of which have warned their businesses are hurting. The Philadelphia Stock Exchange's Semiconductor index of stocks is off 33 percent since early October. Within the group, Atmel Corp. and Lattice Semiconductor Corp. have already made public their struggles as Asian customers prove unable to finance purchases. Lattice, which reported earnings late Monday, saw its sole Korean distributor declared insolvency in December. For some chip companies, analysts said, a potential bright side awaits. Many of the companies in Korea that are slowing capital spending are the same companies that were rapidly building production capacity for commodity memory chips despite massive global oversupply. In a research note released on Tuesday, SBC Warburg Dillon Read said the crisis already appeared to be slowing purchases of capital equipment in Korea. "We believe that a slowdown in capital spending in Korea, Japan and Taiwan among commodity manufacturers should help bring supply and demand into balance in 1999," SBC semiconductor analyst Greg Michou said. Asia's woes have produced fresh enthusiasm in the United States for home-grown revenue streams, such as those enjoyed by the computer services companies. On Monday, Salomon Smith Barney analyst Richard Weingarten raised his ratings on shares of the services companies, including First Data Corp. and National Data Corp. , citing their relative attractiveness as a "safe haven" during periods of international instability. To be sure, for many companies, such as those in the business of making and selling personal computers and hard disk drives, the outlook is complicated. A shift by many U.S. companies to move manufacturing to Southeast Asia means several companies may benefit to nearly as great a degree as they suffer from the crisis. International Business Machines Corp. , to name one, derives a very small fraction of its revenues from Southeast Asia but has some 14 manufacturing plants scattered throughout the region, Salomon Brothers analyst John Jones said. IBM and other disk drive makers "have used Asia as a haven to reduce manufacturing costs," Jones said. With local currencies in rapid decline, "those costs just got lower."