Easy Money Investing

It seems the collapse of the USD is quickly spreading; the Korean Won has become the latest currency to cash in on the sagging Dollar. As with regard to other currencies that have risen against the Dollar, forex analysts are not attributing the Won’s rise to strength in the Korean economy, but rather weakness in the US economy. It is also worth noting that previously, when the Won rose sharply against the Dollar, the Korean government moved quickly to intervene in forex markets in a vane attempt to protect the export-dependent Korean economy. However, as the Won inevitably continued to rise, the government incurred massive losses, essentially for naught. As a result, analysts expect the Korean government to remain on the sidelines this time around. The Korea Times reports:

“Other than verbal intervention, it will be difficult for the government to actually meddle in the market to help stop the won’s appreciation.”

Read More: «www.koreatimes.co.kr»

It seemed like such a good idea at the time. In late 2005, Intel («www.businessweek.com») announced a joint venture with Micron Technoloy («www.businessweek.com») to build a type of memory chip known as NAND flash, «www.businessweek.com» (BusinessWeek.com, 11/22/05). More than two years on, Intel is smarting as prices for those chips tumble.

Intel, the world’s largest computer chipmaker, said late on Mar. 3 that it now expects gross margin, a measure of profitability, to be about 54% in the current quarter, cutting an earlier forecast for a gross margin of 56%. The main reason: lower-than-expected prices on NAND flash memory. Intel shares sagged during much of the following day, before staging a late-day recovery to close a penny lower, at 20. Analysts Point to Bigger Issues

Still, several analysts revisited sales and stock forecasts for the chipmaker, some speculating that falling memory prices are but one of several woes facing Intel as PC demand falters. “Beyond the weaker NAND prices impacting margins, we believe Intel is facing a weaker mix in PC-related sales as the U.S. economy slows,” says Edwin Mok at «investing.businessweek.com».

The idea that NAND would have so big an impact on Intel’s margins came as a surprise to some analysts. Intel is a recent entrant to the market, and NAND flash still accounts for a small slice of overall sales. Intel accounts for a mere 3% of the global market, and ranks fifth behind Micron, «investing.businessweek.com», «investing.businessweek.com» and «investing.businessweek.com», according to researchers at iSuppli.

What’s more, NAND flash makes up “only 3% of total Intel revenue, or $300 million per quarter,” JPMorgan («www.businessweek.com») analyst Chris Danely argued in a research note issued after Intel’s disclosure. For NAND to be the sole cause of Intel’s overall margin squeeze, the gross margin on NAND would have to have plummeted to 47% from 20% in a single quarter, Danely wrote.

A potentially bigger challenge? Danely and other analysts point to rising stockpiles of unsold chips. “Intel’s microprocessor business is below expectations from excess microprocessor inventory in the channel,” according to Danely. “We believe Intel will need a strong March to achieve the midpoint of its guidance, which will be difficult, given the strong headwinds from high inventory and weakening PC demand.” Chips Take a Hit from Economic Slowdown

As tepid as demand for PCs may be, there’s no denying the severity of price pressure on NAND chips, which store data even when the device in which they’re being used has been turned off. That makes them ideal for use in consumer products like music players from the likes of Apple («www.businessweek.com»), and digital camera memory cards from SanDisk («www.businessweek.com»). An 8-megabit chip that would have sold for $7 a year ago is now selling for less than $3, says iSuppli analyst Nam Kim. After seeing double-digit profit margins from chip sales during 2007, many NAND vendors are likely now seeing operating losses, Kim says.

Since NAND chips are used almost exclusively in consumer products from memory cards to music players to thumb drives and, occasionally, even in PC hard drives, the business is more exposed than any sector of the chip business to consumer sentiment, Kim adds. “Between 85% and 90% of NAND chips end up in the retail market, and that depends on consumer spending,” he says. “When people are afraid of a recession, or when they have budget constraints, they don’t upgrade the memory card on their camera or [they] forgo buying a new iPod. It’s a sector that’s very sensitive to the consumers, and their outlook is pressuring the market substantially.”

Global sales of NAND chips are likely to grow only slightly in 2008, after rising about 12% to almost $14 billion in 2007, Kim says. Apple is having an outsize impact on the market. The company, which uses NAND flash in the iPhone and all but one version of its iPod player, has reduced its orders for NAND in 2008.

Even as demand slumps, chipmakers are planning ahead for an economic turnaround, adding NAND manufacturing capacity. ISuppli expects capital spending on NAND to grow by 20% in 2008. Restoring Inventory Balance

Citigroup («www.businessweek.com») analyst Glen Yeung thinks the effects on Intel will be short-lived. Prices on the chips are nearing bottom and Yeung predicts that more than one-third of the reduction in expected gross margin may be the result of a onetime writedown on NAND inventory. “While the negative effect of NAND will impair margins throughout 2008, we anticipate a waning impact as the year progresses,” he wrote in a Mar. 4 research note.

As the U.S. economy veers toward recession and consumers and businesses alike rein in demand for PCs, Intel will need all the margin support it can get.

When Clearwire forged a partnership with Sprint Nextel last year, the deal was viewed more as a bonus than a must. Sprint Nextel was offering an extra set of hands, with money in them, to help Clearwire accomplish what it had set out to do anyway—build a nationwide high-speed wireless network based on a technology called WiMax—cheaper and faster.

In retrospect it appears that Sprint’s helping hands were—and remain—vital to Clearwire’s («www.businessweek.com») plans. The company’s shares slid 3.3%, to 14.02, on Mar. 4 after a weak fourth-quarter report that also failed to bring word of a new deal with Sprint («www.businessweek.com») to replace the preliminary agreement that unraveled in November. Sprint, which has been stung by customer losses and a management shakeup, “is now fully focused on how it can take advantage of its [next-generation network] opportunity,” Clearwire CEO «investing.businessweek.com» said in a conference call with investors on Mar. 4. “We hope to be able to have something more definite to discuss with you soon.”

The prospectus for Clearwire’s initial public offering in March, 2007, told a far different, more independent story: “We intend to deploy our network throughout the United States and internationally in markets that we find attractive.” Most investors took that to mean that with support from investors Intel («www.businessweek.com»), Motorola («www.businessweek.com»), «investing.businessweek.com» and stockholders, Clearwire would and could go national—nay, international—all on its own. A Long, Pricey Road Ahead

But now it’s becoming clear that Clearwire probably didn’t have the financial wherewithal to pull off a solo act when the deal with Sprint was cobbled together. “Even at the IPO there was a funding gap,” says Eric Kainer, an analyst at «investing.businessweek.com». To build a nationwide WiMax network and get it off the ground, a company would need to spend from $8 billion to $12 billion, he figures. After all, once a network is constructed, “I don’t think it would be profitable in the first few years,” says Dan Locke, an analyst at consultant «investing.businessweek.com».

And Clearwire is at the very beginning of this journey: It only plans to soft-launch its first market—Portland, Ore.—by midyear. The company, founded by celebrated wireless entrepreneur Craig McCaw, currently uses an older technology to deliver broadband Internet access to 400,000 customers in 16 states.

Last year, Clearwire was counting on raising additional funds through public debt offerings. But with the subprime mortgage crisis freezing up the credit markets, raising capital for its network build-out became “easier said than done,” says Walter Piecyk, an analyst at «investing.businessweek.com». “It’s a difficult financial market to raise capital in for a company that’s burning cash.” Not counting interest, taxes, and depreciation, Clearwire lost $133.8 million in the fourth quarter, nearly double its $78.1 million loss during the same period in 2006. Mutual Miseries

Without new funding or a partner, Clearwire would be left with nearly $1 billion in cash and liquid investments, only enough to build a smaller network spanning markets with 36 million people, or about a tenth of the country, Piecyk estimates. That would make Clearwire little more than a regional player. And companies like Intel “don’t want to invest in a regional player,” says Piecyk.