Blog Post

Greenback Blues? Not In Techville

[qi:053] James Surowiecki, reknown author, speaker and the financial correspondent for The New Yorker, in a recent article explains why no one in the US is feeling the pinch by the sharp decline in the dollar, unless of course they are off on an European shopping trip searching for rare Hermes bags, or bespoke Saville Row suits. “Americans are able to buy far more stuff with their flimsy currency than one would expect,” he writes.

The flimsy currency, dismissed as the new peso by some Wall Street types, is actually helping the technology companies post better than expected results. (Which also means, don’t believe the hype!)

Amazon (AMZN), for instance reported third quarter 2007 revenues that got a $75 million lift because of a weak dollar. Or Google (GOOG) for that matter. Had the currency rates remained stable, the search giants says its 3rd quarter 2007 revenues would have been lower by about $121 million when compared to the 3Q 2006.

Derek Brown, analyst at Cantor Fitzgerald, pointed out that eBay recently posted an upside that was “fueled almost exclusively by FX (currency) gains, acquisitions, and a much lower-than-expected tax burden.” He estimated that eBay’s revenue was boosted by $54 million and operating income by $24 million because of a weak dollar.

4 Responses to “Greenback Blues? Not In Techville”

  1. Jack Coupal

    American companies – especially the smaller ones – which have been doing a lot of outsourcing overseas for many years, are now learning one of the financial downsides of locating facilites there.

    The bigger companies with experience always knew it was a distinct possibility and would happen eventually.

  2. I wonder how much black-blood-of-economy (namely oil) bought from abroad for dollars as %% rate and how soon this factor will be felt in consumer confidence… Or, am I asking stupid question for car-driven nation?

  3. This is interesting. I had read that the weak dollar would help local manufacturers compete, and I understand that the weak dollar helps companies earning foreign currency.

    The fear, however, is that although gains in foreign markets are unexpectedly profitable, the ongoing cost of foreign operations will be unexpectedly expensive. Only tech companies that can afford to keep investing will reap the rewards of the low dollar. Others, especially those that have located most of their cost centers abroad, will be harmed.

  4. Well, it is true for any consumer driven global business. It will increase the revenue but also the spending as the cost for supporting call centers, outsourced development facilities and such increases.