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

To: Beachside Bill who wrote (806)	6/19/1998 12:17:00 PM
From: Ron Bower	Read Replies (1) \| Respond to of 1418

Thread, Another of those posts I probably shouldn't make. I've gone thru periods like Deswell faces in my business. In the early '80s the banks stopped making long term business loans and interest rates on the loans went up to near 20%. Because of the interest, customers reduced inventories, order visibility disappeared. Some companies, for various reasons (bank payments, not wanting to lay people off, management not wanting to reduce salaries, union obligations, etc.) decided they HAD to keep producing. They began to cut prices and margins, hoping to ride it out. Others, including some with debt, laid off people, reduced overhead, concentrated on serving their best customers, and rode it out. By 1985 the economy had recovered, but there was a major change. The ones that lowered their prices were weak or no longer in business, the ones that rode it out had less competition and were stronger than ever. The situation in Asia is different, but the effect is the same. Companies are uncertain as to what's going to happen. Customers reduce inventories, place lower product orders, and go bargain hunting. Order visibility shrinks and the competition heats up. Different companies will respond in different ways. Some will get very aggressive and take chances, others will take a more conservative approach. I had the impression Mr. Lau was concerned that they wouldn't be able to continue past growth. I can understand his frustration, but how can a high earnings growth rate be expected with everything that's going on? There are some companies in Asia that have been selling their products at cost, hoping to profit from further devaluation of their currency. Others have cut prices just to keep from losing face. Some have guaranteed employees lifetime employment. Some have union agreements that force payrolls even if sales are down. Some must keep a cash flow going because of bank payments. Most of these companies will be weaker at the end of the crisis. Deswell is in a good position because of past conservative policies that resulted in their strong cash position. This is a time to pay attention to the essentials of keeping key personnel, minimizing overhead, keeping the good customers, and be ready to get back on track when the situation stabilizes. It is not a time to get involved in price wars. IMO - Deswell's advantage actually increases the longer the 'crisis' lasts. There's a lot of companies in China that are or will be in serious trouble, some of them competitors with customer lists. If the 'crisis' continues, these companies, their equipment, their customers, and their key people, will become available cheap. One of the most difficult things for investors to do is to buy into weakness. (I'll never understand why a stock runs up AFTER an earnings report) The time to buy is when the company is in position to take advantage of the future. IMO- a description of Deswell's current position. JMHO, Ron