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

To: Ron Bower who wrote (963)	9/4/1998 1:44:00 AM
From: kolo55	Read Replies (2) \| Respond to of 1418

Here's a thumbnail sketch. The move by several big ECM companies is to open 'manufacturing campuses' in emerging countries like China, Mexico, Malaysia, Brazil, Hungary, Romania, etc. On the campus, there could be operations run by suppliers who are not owned by the ECM company, taking care of things like supplying plastics, metal parts, shipping containers, electronic components, etc. For example, Solectron and Flextronics both have manufacturing campuses in China, serving primarily American or European OEMs, although they may be making inroads into Asian OEMs. I'll use Flextronics as an example. Flextronics owns 40% of FICO Plastics in China, which is a fraction of the size of Deswell. Flextronics has the right to buy the remaining 60% in December, if I recall correctly. This will give us some idea what the Jetcrown subsidiary would be worth in a private transaction, when we see all the details of that deal. In additon to FICO, they recently bought a plastics supplier in Colorado (DTM Plastics), and are having them to build plastics capability in their Guadalajara campus. If the move to manufacturing campuses makes sense, then eventually Deswell would be an outstanding takeover candidate. Another possibility is if Deswell builds their own campus. With Jetcrown, Kwanta, and Kwanasia subsidiaries, they are part of the way there. However, I don't believe Kwanasia manufactures the quantity of assembled products to compare with the big ECMs. Clearly they would need to join forces with other companies to compete. So this leaves Deswell as a supplier to other assemblers, and as a niche assembler with a certain technical capabilities, at least for the time being. But they are located in a key growth region, with technical competancies in an enormous growth sector for that region. I don't think they will have too much trouble growing over the next several years provided we don't get an world-wide economic slowdown. Then somewhere along the way, they will need to join forces with other players. If there was a big ECM company setting up shop in China, Deswell would be a very juicy plum. And that is even if they had a weak balance sheet and income statement! But in the meantime, I think the management is very capable of growing this company, finding high margin opportunities to capitalize on. The V-tech deal is an example of this, and I believe will be a huge deal for this company. Paul

To: Ron Bower who wrote (963)	9/4/1998 8:33:00 AM
From: jmt	Read Replies (1) \| Respond to of 1418

Ron: I am not sure where you currently stand on currencies, but the current concensus is the the Yuan and HK Dollar will devalue in the fourth quarter. The posturing of China is in refuting this is to be expected (they cannot do otherwise). Some of the research I have recently reviewed further states that China's theoretical hammer, the huge foreign currency reserves, are not as large as China would like the world to believe. And of course there is no way of confirming this. If I understand you correctly, you stated an expectation on a declining Dollar. I would strongly disagree. Demand for Dollars is at an all time high, as reflected in the money flowing to the US Treasury market (Long bond could pierce 5%). On another note, how much can the plastic be worth in a $39 VTech phone? I question the quality of the phone with the pricing at these levels. Anybody own one? jmt