NEWS FROM JAPAN: Firms find ways to better profits in slow environment

NEWS FROM JAPAN: Firms find ways to better profits in slow environment

July 30, 2007 – A roundup of the past week’s headlines from Japan center largely on April-June financial results, with Toshiba and NEC improving their profits (though largely due to restructuring and asset sales), while Fujitsu takes a hit for finance missteps.

Toshiba Corp. which had warned of a profit decline in fiscal 1Q, actually posted a 2% increase in group operating profit to 21.2 billion yen (US $178.8M), thanks to a 17% jump in chip profits (to 23.5B/$198.2M), mainly from its flash memory business, reports the Nikkei daily. Sales rose about 15% to 1.66T yen ($13.9B), and total net income leapt fivefold to 20.63B yen ($173.8M), which included the sale of real estate and the stake in a music-content venture, noted the Associated Press.

Flash memory prices have recovered from an 80% plummet a year ago and stabilized in 1Q thanks to increased demand from cell phones, MP3 players, and other electronics. That, plus a 1T-yen ($8.4B) investment in flash memory over the past three years, has narrowed the gap with market-leading Samsung to around 44% vs. 30%, and “we expect to reach parity in worldwide market share in 2008,” according to an unidentified Toshiba official quoted by the paper.

The company has hiked its 3Q operating profit forecast to 70 billion yen (~$590M), a 7% Y-Y increase, instead of previously anticipated 40 billion yen ($337.4M), the paper noted, and full-year earnings (currently pegged at a -13% drop) might be improved as well, according to EVP Fumio Muraoka.

DRAM maker Elpida, too, more than doubled its group net profit in fiscal 1Q (to 14.55B yen/$122.7M, vs. 6.61B yen/$55.8M in 1Q06) on 19% higher sales of 109.48B yen ($923.4M), thanks to its $320 million sale of 200mm wafer processing equipment to China’s Cension Semiconductor Manufacturing Corp., from which it pocketed 22.1B yen ($186M), noted Dow Jones. The company managed to maintain profits despite a >50% plunge in ASPs by selling DRAM into end products other than PCs, as well as other cost cutbacks. It also held firm in pricing negotiations with its customers, and expects DRAM prices to stay near or above the $2.50 mark in the current quarter, the report noted.
In a separate announcement, Elpida said it will absorb its DRAM manufacturing unit, Hiroshima Elpida Memory Inc., at the start of the next fiscal year in order to coordinate technology development, manufacturing and sales.

Also improving its books was NEC Electronics, which narrowed its fiscal 1Q07 net loss to 1.33B yen ($11.3M), vs. a 6.09B yen ($51.4M) net loss a year ago, and operating loss was more than cut in half to 2.23B yen ($18.8M), on 5% higher sales of 173.57B yen ($1.46B). Cuts in R&D and SG&A, previously announced facilities closures and transferring of manufacturing operations, and a strategic shift to automotive and digital products have turned things around, as did proceeds from the sale of its Fabserve photomask operations to Dai Nippon Printing Co. Ltd., noted a Dow Jones report. CFO Hiroshi Sato was cited saying that NEC could achieve an operating profit as soon as the current quarter even if sales growth remains “mild,” though full-year projections remain unchanged, with a loss of 15B yen ($126.5M) on sales of 690B yen ($5.82B).

Not faring as well as its brethren is Fujitsu, which swung to a group net loss of 14.7B yen ($124.0M) in fiscal 1Q, vs. a tiny 600M yen ($5.1M) net profit a year ago. The big item was a 25B yen ($210.9M) hit for changing to new accounting valuations ahead of FY08 requirements, which also is causing the firm to trim FY07 profit projections by 13% to 65B yen ($548.2M), noted the Nikkei daily. Sales rose 6% to 1.16T yen ($9.78B), with sluggish shipments for businesses including chips being offset by other group businesses.

Elsewhere, Matsushita Electric Industrial Corp. saw group net profit rise nearly 10% also due to cost-cutting efforts, while operating profits rose 14% on ~5% higher group sales. All businesses except JVC saw sales rise Y-Y, driven by flat-panel TVs, digital cameras, and car electronics, as well as a weaker yen, noted Dow Jones.


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