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

To: kolo55 who wrote (719)	5/6/1998 7:32:00 PM
From: Ron Bower	Read Replies (2) \| Respond to of 1418

Paul & J, From the 20F: "The Company has found that increases in resin prices can be difficult to pass on to its customers and, as a consquence, a significant increase in resin prices could have an adverse effect on the Company's operations." Conversely, a sharp drop in resin prices would be beneficial. I presume this applies to other raw material as well and could be a reason the 3rd Quarter was better than we anticipated. When the report came out, I noticed that the raw material inventory was a little higher than I had anticipated. I believe they were taking advantage of low prices. This is also a major factor when considering competition. Resin is priced in $US. Companies that have had currency devaluations pay the same in real dollars. According to the 20F, resin amounts to 44-46% of COGS. For a competitor to take business away from Jetcrown, they would have to underprice on the remaining 54-56%. This would be very hard for them to do because plastics is not labor intensive and Jetcrown's modern equipment provides them with far lower operating costs (10% according to Nesbett). Only by buying similar equipment could they compete and most Asian companies do not currently have the financial resources. In my experience, competition is big factor when there's a shortage of business. Paul has indicated that the sector is growing, Deswell's business seems to bear this out. Namtai's problem appears to be a result of doing a lot of business with Asian companies and not being able to hold the customers they had. This would be consistent with a company that steals fickle business thru pricing. IMO - If the sector continues to grow, Deswell will grow and sustain margin percentages. Ron