Mon, Nov 05, 2001 - Page 17 News List

Tech firms may need to reorganize

AFP , TOKYO

Japan's battered technology companies must restructure soon and innovate like never before to stand a chance of surviving the global economic slowdown, analysts say.

"Those that can successfully carry out reforms will likely form a winning group and those that can't will be left as losers," said Okasan Securities Co Ltd analyst Koichi Fujimoto. "Many companies have announced job cuts but few have touched on business reorganization."

In the past two weeks, the giants of Japan's electronics industry, from top semiconductor maker NEC Corp to consumer electronics leader Sony Corp have all announced massive interim losses and offered grim full year forecasts as the worldwide slump in demand for technology eats into business.

"Over the next two years we will see some perform better and some perform less, it depends on what they do in hard restructuring," said Goldman Sachs technology analyst Ikuo Matsuhashi.

"It is likely we will see spin-offs as they trim their portfolios and improve efficiencies."

NEC, along with rivals Toshiba Corp, Fujitsu Ltd and Hitachi Ltd groaned as weak demand amid a global economic slump aggravated by the Sept. 11 terrorist attacks in the US hit half year earnings and pressured forecasts to March.

"Our semiconductor businesses were battered seriously. This slump is not a mere cyclical one but a structural problem," Shigeo Matsumoto, executive director of NEC, said after the firm suffered a first half net loss of ?29.9 billion (US$249 million), against a ?20.5 billion profit last year.

"We are experiencing unprecedented business conditions," agreed Toshiba president Tadashi Okamura as the computer and electronics firm incurred a net loss to September of ?123.1 billion, reversing a net gain of ?53.9 billion a year earlier.

Hitachi and leading computer maker Fujitsu's balance sheets were also blotted with negative numbers, and all four firms forecast deep net losses for the full year ranging from ?150 billion expected by NEC to ?310 billion projected by Fujitsu.

The tech slump also hammered earnings at electronics appliance makers such as Sony and Matsushita Electric Industrial Co Ltd. This sector is directly exposed to the chilling impact on consumer spending of the terror blitz in the US, which would further pressure profitablity, analysts said.

"We will see the effect of the terrorist attacks this Christmas season, and in the second half [to March]," said Masahiro Ono, consumer electronics analyst for UBS Warburg.

"There seem to be very few `killer applications' so the next period's upside won't be very big."

Worldwide demand for Sony's electronics goods slipped in April-September, with sales in the US and Europe down around 10 percent from a year earlier, the firm said as it posted a net loss of ?43.3 billion in the first half to September.

"Sony is going to face tough times from here on," Ono said.

"Up to now, the firm has had a really strong brand and grew because of it, but as the market gets tighter, because of their relatively high prices, they might take a hit."

Sony still aims to push a ?10 billion profit for year to March, unlike archrival Matsushita, better known through its Panasonic and National brands, which cut its full year forecast to a net loss of ?265 billion from a gain of ?57 billion.

The nation's major electronics firms all attached greater urgency to restructuring plans involving combined job cuts of over 100,000 as well as branch closures, but analysts feel rationalization alone won't cure the technology blues.

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