Fri, Jul 12, 2002 - Page 10 News List

Toshiba, NEC and Fujitsu say chip units improving


This week's forecasts by Toshiba Corp, NEC Corp and Fujitsu Ltd for higher chip sales to makers of digital appliances didn't reassure some investors.

They were pleased the companies shifted to making chips for DVD players, digital cameras and video-game consoles just as demand for personal computers slumped.

If only the chipmakers hadn't all done it at once. By piling into the market at the same time and remaining dependent on only a few customers, they made themselves vulnerable to lower prices once demand cools, investors said.

"Japanese chipmakers risk simply becoming component suppliers for appliance makers, rather than technology leaders," said Yoshiya Morimoto, who helps manage US$7.2 billion in Japan equities for Japan Investment Trust Management Co.

Chip sales at Toshiba, the world's second-largest chipmaker, jumped more than 10 percent in the three months ended June compared with a year ago, company spokesman Kenichi Sugiyama said this week. NEC and Fujitsu also said first-quarter earnings from chips were better than their estimates for the period.

A recovery in first-quarter sales may help reverse combined losses of US$8 billion last fiscal year for the three companies, which came as demand for PCs tumbled and memory-chip prices fell below the cost of production. While chip orders suggest Matsushita Electric Industrial Co and other consumer electronics companies are optimistic about demand, analysts say the craze for digital appliances won't last forever.

Japanese chipmakers "won't be able to argue with their customers anymore," said Hiroyasu Nishikawa, an analyst at Cosmo Securities Co. "They will become yes men."

For all the investment in new kinds of chips for gadgets, computers and mobile phones are still the main consumers of semiconductors, he says. Consumer electronics accounted for 15 percent of all semiconductors sold in 2000, according to the Semiconductor Industry Association. Computers accounted for 46 percent and communications equipment 24 percent.

Japan's chipmakers responded to last year's slump in demand by cutting jobs, closing plants and getting out of the money-losing business of making dynamic random-access memory chips, the main memory in personal computers. They also began last year investing more in technology to make chips for mobile phones, game consoles and digital televisions.

Toshiba, which sold its US memory-chip business to Micron Technology Inc, now makes processor chips exclusively for Sony Corp's PlayStation2 game console.

The decision to make other kinds of chips couldn't have come at a better time. PC shipments dropped last year for the first time since 1985. Worldwide sales of semiconductors fell by a third to US$139 billion, their worst-ever annual decline.

Meanwhile, the DRAM market shrank by 63 percent to US$11.9 billion. The move also coincided with a drop in prices for DVD players and digital cameras, fueling a surge in demand for those products.

Sales also increased as more movies were released on DVD and the quality of pictures taken with digital cameras began to rival film-based counterparts.

Domestic sales and exports of digital cameras made in Japan rose by 38 percent to ?237 billion in the January to May period, compared with the same five-month period last year, according to the Japan Camera Industry Association.

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