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The dollar: friend or foe to tech?
Weak dollar could give some tech firms a short-term boost, but it isn't good news for the long run.
November 21, 2003: 4:02 PM EST
By Paul R. La Monica, CNN/Money Senior Writer

NEW YORK (CNN/Money) - The weak dollar is plaguing the broader stock market, but it could be a blessing for the stocks of large multinational tech companies, at least in the short term.

Companies like IBM (IBM: Research, Estimates), Microsoft (MSFT: Research, Estimates) and Intel (INTC: Research, Estimates) generate a large portion of their sales overseas. And the weak dollar has helped inflate multinational tech companies' sales for the past two quarters since revenue from other countries is worth more when converted back into dollars.

Hewlett-Packard (HPQ: Research, Estimates), for example, recently posted stronger-than-expected sales growth in its fiscal fourth quarter, thanks to solid sales increases in Europe and Asia. Sixty percent of HP's sales came from outside the United States.

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But money managers say investors should not buy or sell tech stocks just because of currency fluctuations.

"There's a tremendous translation advantage for techs that get a lot of revenue overseas, but you have to look at these gains as one-time events since the dollar can't decline forever," said Adam Adelman, senior analyst with Philippe Investment Management, a New York-based asset management firm which owns IBM, Intel and Microsoft.

The weak dollar also helps techs with significant international exposure because it makes the prices of their products and services seem more attractive. But even this is viewed as a temporary benefit.

"Surely the dollar makes pricing more competitive for U.S. companies," said Sunil Reddy, manager of the Fifth Third Technology fund, which also owns IBM, Intel and Microsoft. "But it's more a noise factor than anything else on a short-term basis."

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The key driver for tech companies' sales growth next year is not going to be currency but whether corporations are going to be willing to spend more. Consumer demand for technology has remained fairly robust but businesses have been more reluctant to make large-scale tech purchases.

Still, if corporate demand does not pick up as much as people are hoping for and the dollar does strengthen a bit, that could hurt tech companies that have been propped up by a weak dollar.

IBM said that nearly all of its revenue growth in the third quarter was due to favorable currency conditions and acquisitions; there was little in the way of rising demand driving organic growth.

"Clearly the far more important factor for tech is the relative strength of the economy. It trumps the dollar situation," said David Joy, capital markets strategist for American Express Financial Advisors. "But if the dollar improves, it does take the bloom off the rose for some of the sales numbers that companies have reported."

And of course, the weak dollar is not doing any favors for companies that have little international exposure. In addition, it has led to some fears that foreign investors will pull money out of U.S. assets, which could put the economy's recovery in jeopardy.

So while a continued slide in the greenback could help some techs' fourth-quarter sales look better, investors must hope that the dollar doesn't fall too drastically.

"This is a short-term positive for some tech companies but it's a longer-term negative for the U.S. economy," Adelman said.  Top of page




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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.