Japan firm to slash investment

08/01/1998

Japan firms to slash investment

After posting a disappointing 12 months, the Top Ten Japanese chipmakers expect their semiconductor sales to rise about 4% in the current fiscal year, which began April 1, but intend to make a sharp 26% cut in capital spending in light of poor profitability and continuing overcapacity.

As a whole, the group of companies is forecasting FY98 sales of 5.3 trillion yen ($38.1 billion), and capital spending of 770 billion yen ($5.5 billion) (see table). The spending figure represents just 14.5% of sales and is the lowest level (in dollar terms) since 1993, according to figures from Integrated Circuit Engineering, Scottsdale, AZ.

In FY97, which ended March 31, the Top Ten spent 1039.8 billion yen ($7.4 billion) on semiconductor capital projects - about 7% less than had been forecast a year ago, and 8.5% less than FY96. A prime driver was slower-than-expected sales; production for the group came in about 10% lower than originally forecast, with Hitachi`s sales a disappointing 19% below forecast. Virtually all the companies made mid-year adjustments to their spending plans, with Hitachi and Mitsubishi cutting 30 billion and 25 billion yen, respectively. Toshiba actually spent 20 billion yen more than expected.

The only one of the ten firms to increase its investments in the current year is second-tier supplier Sanyo, which is boosting spending 3.7% to 48 billion yen ($344 million). NEC, the largest and strongest Japanese chip manufacturer, will keep semiconductor capital spending constant at 180 billion yen ($1.3 billion) in the current FY, while Toshiba, the second-largest firm, plans a 17.6% cut. Third-place supplier Hitachi will cut its spending by one-third to 80 billion yen ($576 million) from 120 billion yen last fiscal year.

NEC`s plan - to keep its foot on the gas in the new year - comes in sharp contrast to most other Japanese firms. Taking the biggest percentage reductions will be Fujitsu at just under 50%, and Oki, which is slashing its budget by over 59%. The depressed DRAM market, ongoing problems in Asian markets, and resulting losses on chip sales have all contributed to the situation, as has uncertainty over the Japanese economy. Observers suggest that NEC wants to take advantage of its size and recent profitability to distance itself from its competitors.

An NEC spokeswoman said the company posted semiconductor sales of 1150 billion yen in the year ended March 31, and expects sales of 1230 billion yen ($8.9 billion) in the current year. Profitability for the chip unit is not broken out, but NEC did post operating income in its electronic component sector, which includes LCDs and other devices. Memories accounted for 29% of last year`s sales and are seen dipping to 27% this year, with System LSI devices increasing from 57% to 59%.

Hitachi, meanwhile, expects its semiconductor sales to decline about 4% to 680 billion yen ($4.9 billion) this year from 710 billion yen last year - the only Top Ten firm to anticipate a decline in sales. Memories, 35% of last year`s sales, are seen accounting for 29% this year, with microcontrollers and other logic at 43%. Bipolar devices are expected to account for 11% of sales.

A Hitachi spokesman said the company plans to continue with last year`s strategy of emphasizing microcontroller and microprocessor production, while aggressively targeting a shift to 0.18-?m geometries for DRAMs.

One important factor in evaluating these announcements outside Japan is the continued weakening of the yen, which had slipped to nearly 140 to the dollar in recent trading. Had the currency stood at 120 to the dollar, for example, NEC`s capital spending would have represented $1.5 billion rather than $1.3 billion, and the group`s spending as a whole would be $6.4 billion rather than $5.5 billion - P.N.D.