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Passive components shortage imminent?

Tax changes could cut manufacturing
Fri Feb 14 2003, 19:18
SHARE DIVIDENDS WILL NOT BE TAXED under planned changes that could come into effect this year in the US. This could have far reaching consequences for component suppliers. More than half the suppliers in the US do not issue dividends and that could drive investors away.

Shawn Wood, analyst at iSuppli, has warned that passive component suppliers face an uphill struggle to keep their capital investments going at a steady rate. He outlines three possible scenarios in a new report. The most likely scenario is that demand will outstrip supply and prices will rise as a result of the tax changes.

Companies in China ramping up production to meet demands is another possibility, though Wood finds that idea far less likely. Consumer demand dropping due to high prices is another option.

At the moment, many American passive component suppliers plough money back into adding new facilities or improving existing ones rather than paying share dividends. If they start paying out, there may not be any money left to keep doing that.

If the companies do not start to pay dividends, shareholders would be likely to switch to shares that do pay out. That would almost certainly drive the share prices down and lead to still further problems. µ



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