Japanese chipmakers cut spending plans

01/01/1999

Japanese chipmakers cut spending plans

Japan`s large semiconductor houses have disclosed gloomy sales results for the first half of the Japanese fiscal year, and made cuts to their capital budgets for the year (see table).

First-half semiconductor sales came in below expectations for all Japanese producers, with NEC leading the way. It posted revenues of 520 billion yen ($4.5 billion), and now expects full-year sales of 1070 billion yen instead of 1230 billion. Previous year sales were 1150 billion yen.

NEC and Toshiba still expect to be profitable for the year on their overall operations (semiconductor and other business lines), on the strength of firming DRAM prices and savings from reorganizations; Fujitsu, Hitachi, and Mitsu- bishi are all looking at full-year losses.

Morgan Stanley Dean Witter analysts Takatoshi Yamamoto and Tomohiro Murata said, "The operating environment for Japanese (chip) producers continues to deteriorate. Having seen DRAM prices hit a high, almost all manufacturers have come under intense pressure to lower prices, while at the same time facing rapid yen appreciation and the worsening of the Japanese economy as a whole." Their colleague Noriko Oki suggested that current FY capital spending in Japan will now come in 36% below last year, rather than the 26% forecast at the beginning of the year, with FY99 (starting in April) dropping another 6% due to weak cash flow.

Other observers suggested that the capital spending picture could get worse if DRAM prices take another dive in the next few months; however, this would seem unlikely barring a sudden slowdown in end-user demand.

Indeed, Bill McClean of IC Insights, Scottsdale, AZ, said the rise in semiconductor sales between August and September last year was the strongest August-September sales increase in the current decade - 4.3% compared to an average 2.3%. "The IC industry is currently in the embryonic stage of the next boom period," said McClean. IC Insights also feels that the Y2K problem will stimulate electronic equipment sales starting next year and running into 2000 and 2001. - P.N.D.