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Technology Stocks : Deswell Industries (DSWL) -- Ignore unavailable to you. Want to Upgrade?

To: j rector who wrote (575)	3/21/1998 11:40:00 AM
From: Ron Bower	Read Replies (1) \| Respond to of 1418

All, My reason for saying we could have some price weakness is the current thin trading and I can't see it maintaining price stability if there's another 80K shares put into the sell side. However, they will run the shares thru their MM and some funds may be lined up to take the shares. We may have support at 20 or so. I won't let it drop very far before my margin interest will start in again. Next earnings should give another boost to price that would far exceed the interest for a couple of months. j, my projection for fiscal '98 was $3.50 with Toshiba machines in operation. The Kwanasia expansion won't be completed until Sept so it will only impact the last two fiscal quarters. Because I made allowance for the new machines increasing production of Kwanasia and Kwanta in my estimate, I don't think I would change it. Remember, Kwanasia is only 50.1% owned. As far as I know, Deswell's sales are primarily for US and European markets, particularly the OEM sales. (All sales are in $US or $HK) Mita, Namtai, etc, are Asian with but primarily US/European export, but the percentage of reliance on these companies has decreased to a small amount and most all new business has been to US companies. The concentration on telecom indicates this to be the future focus. I think lower purchasing by Asian consumers would have negligible impact on their sales. Just my thoughts, Ron

To: j rector who wrote (575)	3/23/1998 2:47:00 PM
From: Ron Bower	Read Replies (1) \| Respond to of 1418

j, Further reading and thoughts on the announced expansion. The PR states that Kwanasia's "production capacity to be increased by 120%" and "expansion is for assembly". It appears they are getting a lot of interest from OEMs since they added assembly. This announcement isn't as big as it might appear in that assembly hasn't as yet been a major portion of revenues. As they increase assembly, we will likely see much higher revenue growth, but lower margins. The earnings growth will come from better utilization and increases in Jetcrown and Kwanta, but overall earnings growth will not in be proportion to revenue because of the 50.1% position in Kwanasia and the lower margins from the assembly work. I don't think that Deswell is actually getting sales equal to the revenues they report. Deswell is a holding company with subsidiaries. Sales from Jetcrown and Kwanta to Kwanasia would show up in the revenues of Jetcrown and Kwanta, and also be a part of Kwanasia's revenues. The overall revenues would be overstated and the margins greatly understated. My thinking, Ron