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Singapore tech firms bear the crunch

The global tech slump is sifting the wheat from the chaff, separating resilient Singapore firms from those hit by an earnings crunch. 

Electronics contract manufacturer Venture Manufacturing, networking systems integrator Datacraft Asia and printed circuit board maker Elec & Eltek have proved relatively robust. 

Their ability to weather a storm of profit warnings is due to niche strategies, analysts say. 

"There have been no overt profit warnings from Venture and Elec & Eltek, while Datacraft has affirmed previous guidance," said Russell Tan, an analyst at Netresearch-Asia. 

"They appear to be doing fairly well as compared to the likes of Creative and NatSteel Broadway.'' 

Computer peripherals maker Creative Technology warned that revenues for its fourth quarter ended June 30 would fall 10 percent below an expected $260 million, due to slower than anticipated sales in Asia and Europe. 

Contract manufacturer NatSteel Broadway said its after-tax profit for the six months to June 30 was likely to fall 15 percent from a year ago due to lower than expected demand. 

Buffered by low cost
Analysts say Venture has been buffered to some extent by its diversified customer base, while Elec & Eltek has benefited from a relatively lower cost structure with most of its factories located in China. 

"When demand slows down you don't have a lot of places to hide. So companies need to reduce costs by outsourcing to low-cost locations, which has benefited Venture and Elec & Eltek," said Gregory Yap, research head at OCBC Investment Research. 

"These two companies are also making up for the fall-off in demand from existing customers by getting new customers, which will give them the volume increase to maintain their forecasts." 

"It's a matter of positioning yourself to avoid most of the slowdown." 

There has been a flight to low-cost locations following the tech industry slump in the United States, Netresearch's Tan said. 

"Asia has been getting a bigger share of the manufacturing pie and this has benefited Venture and Elec & Eltek," he added. 

Datacraft has also gained from its geographic focus on Asia, where the telecom industry has not suffered the same degree of overcapacity and overspending as that in the United States and Europe, analysts said. 

source: cnn.com, 18 July 2001