Tech Industry

Asia's economic woes hit high tech

High-tech industries like semiconductors and PCs are vulnerable to the financial turmoil that has swept through the region, analysts say.

High-tech industries like the semiconductor and PC sectors are vulnerable to the financial turmoil that has swept through Asia, analysts say.

Asian countries last week was surveying the wreckage after Japan's fourth-largest brokerage firm Yamaichi Securities went belly up and neighboring South Korea said it requested a bailout from the International Monetary Fund--which some analysts estimate could exceed $60 billion.

Economic woes have been lingering in Japan for several years, with mounting real estate loans that have gone sour and burdened banks. Meanwhile, the economic strength of other nations in Asia has been teetering for the past 12 months, some analysts said.

"Enterprise application software and Internet services have little to no exposure to Asia, but PCs, semiconductors, and wireless communications have some exposure," said Maureen Maguire, an economist with NationsBanc Montgomery Securities.

Indeed, Gateway 2000 (GTW) executives said last week that they're reconsidering their game plan in some areas, such as Southeast Asia.

"PC makers are affected because people have less disposable income in those countries to buy computers," said Lisa Cosmas, an Asia-Pacific research analyst for International Data Corporation. "PC purchases in those regions will probably be postponed until the confidence level is up."

Scott Miller, a PC analyst with Dataquest, said outside of Japan, South Korea has traditionally been the largest PC consuming market.

"Korea is in deep, deep financially trouble," Miller said. "Korea's market is about 50 percent consumer."

He explained that the consumer market is hit harder than the corporate market during times of economic upheaval. Consumers tend to forego buying computers all-together, whereas companies will postpone purchases, he said.

"It just shifts the demand from one quarter to another or from one year to another," Miller said.

But Fore Systems (FORE) may have a different view.

The networking company last July said its first quarter results were hurt by a sales slowdown in Asia, particularly in Japan. Sales in Asia fell to 4 percent of the company's overall revenue pie of $95.4 million, down from 20 percent of $83.4 million a year ago.

Meanwhile, chipmakers were also concerned about events in Asia.

Steve Appleton, chief executive of Micron Technology (MU), told shareholders attending the company's annual meeting last week that a bailout for South Korea could hurt competition among chip makers.

Appleton said South Korea overexpanded its chip production, contributing to some of the economic turbulence the country is now encountering. He added that a bailout could lead to Asian semiconductor makers dumping chips on the world market.

Maguire, however, said U.S. chip manufacturing plants in Asia are financed by mostly U.S. and European money. And, as a result, investment in those factories should not be effected.

Intel (INTC), for example, said last week it will continue with planned investments in the region that range from $500 million to $1 billion. (Intel is an investor in CNET: The Computer Network.)

South Korea's Samsung, meanwhile, said it plans to invest $50 million in its Brazilian electronics unit, despite financial woes in Asia and forecasts of a recession in Brazil. The company said its move reflects a commitment to the area and the proceeds will largely go toward expanding its telecommunications and computer equipment presence, along with a restructuring of its television and videocassette recorder lines.

And when will the climate get better in Asia?

"That's the $20 million question," Cosmas said. "There is a lot of adjustment that has to be done. It is a crisis that can't be fixed overnight."

Reuters contributed to this report.