Asia crisis brings risks, rewards for U.S. companies

Asia crisis brings risks, rewards for U.S. companies

NEW YORK (Reuters): With Asia's financial crisis threatening
economic growth, U.S. industries like technology and finance face
heightened risks from ties to the region.

But while U.S. investors for now appeared poised to abandon
association with the troubled economies, Wall Street analysts
said some multinationals should benefit, particularly those that
have shifted production to the afflicted economies.

"Many U.S. companies in several different industries have been
investing in new plant and equipment and operations in Asia,"
Abby Joseph Cohen, co-chair of the investment policy committee at
Goldman Sachs, wrote in a note to clients.

"U.S. companies that do foreign investment in Southeast Asia
may experience a decline in their production costs," she added.
"On the other hand, if the goods are also sold in Asia, producers
may also find that demand has been hampered."

Several companies had already seen demand weaken and earnings
wilt because of currency devaluations in Thailand, Malaysia and
other economies prior to the Hong Kong tumult.

One such company, sewing machine maker Singer Co. NV on
Thursday said currency played a major role in its earnings plunge
of 96 percent in the third quarter. A year ago, Asian markets
produced 62 percent of Singer's profits.

Likewise, U.S. airlines with significant Pacific Rim business,
including UAL Corp.'s United Airlines and Northwest Airlines
Corp., are expected to suffer from lackluster performances in
Asia.

Gerard Klauer Mattison analyst George Salem cited Citicorp as
a company with facing considerable risk.

"Of U.S. banking companies, Citicorp has by far the greatest
exposure to Asia," said Salem, adding Citicorp derives about 20-
25 percent of its total net income and balance sheet size from
the Asia-Pacific region.

Salem said no other bank draws more than 15 percent of its net
income from Asia, listing J.P. Morgan & Co. Inc. at 15 percent,
BankAmerica Corp. at 8 percent and Chase Manhattan Corp. at 7
percent.

Citicorp spokesman Jack Morris said. He said the bank's Asia
business was "highly textured" with consumer and institutional
features, some of which benefit from currency volatility.

Anticipation

He also said the company had anticipated the crisis by
limiting some credit exposure and shifting some managers who had
worked through a similar situation in Latin America to key posts
in Asian offices.

Makers of capital equipment used to produce semiconductors
have seen stock prices plummet in recent sessions because of
worries about reduced demand from Asian customers.

"We believe fallout from the Asian currency crisis will lead
to steep cuts in capital spending programs at many of the leading
Japanese, Korean and Taiwanese firms," FitzGerald said.

FitzGerald said Japan and the Asia-Pacific markets combined
were expected to account for 54 percent of total worldwide
semiconductor spending in 1997.

"We think investment by Asian firms during 1998 will decline
(vs. 1997), causing worldwide spending to be flat to down,"
FitzGerald said.

Not all technology companies are sharing in the pain. Those
like International Business Machines Corp., which have shifted
production to the affected countries, are reaping cost benefits
from the devaluation.

During a quarterly earnings conference call with analysts last
week, IBM Chief Financial Officer Lawrence Ricciardi said that
effects from the crisis on results in the third quarter were
"negligible."

IBM's addition of a hard disk drive plant in Malaysia was a
main reason, because lower production costs due to the
devaluations nearly offset revenue repatriation effects.

Another group sensitive to economic cycles in the region are
energy companies, many of which plan massive capital projects in
the area.

Phillips Petroleum Co. this week announced that three
petrochemicals ventures in China could involve investment of $2.0
billion over the next 10 years. Exxon Corp. also has plans for a
$2.0 billion refinery and petrochemicals project in Asia.

Dampened economic activity in Asia would mean reduced energy
consumption, experts said, although at this point the cuts are
not expected to be so dramatic that growth stops.