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Toshiba and Hitachi fight to lower costs

Toshiba Corp and Hitachi Ltd, both of which had record net losses last fiscal year, say they expect lower costs to aid their recovery this year.

The stronger yen and a weaker-than-expected US economy are raising doubts that cutting costs is enough, analysts and investors say. Their success, they say, lies in developing chip designs no other company can copy and grabbing more of the market for products in which they're already strong.

Taiwan Semiconductor Manu-facturing Co (台積電) Chairman Morris Chang (張忠謀) didn't help last week when he said a recovery in demand from the industry's worst year on record is stalling.

"The chip industry isn't a growth story," said Wilfrid Pham, who helps oversee about US$2 billion at HSBC Asset Management Japan and prefers Japanese retailers and railway stocks. "There's no interest in the industry in the short term and no growth-driving catalyst."

Toshiba, Hitachi and Mitsubishi Electric Corp may show whether Japan's chipmakers, through cost cuts and plant closings, have been able to reverse losses when they report earnings for the April to June period tomorrow.

Already, NEC Corp. last week said first-quarter chip sales fell 3 percent to Japanese yen 167 billion (US$1.3 billion). Overall, sales at Japan's second-largest chipmaker fell 9 percent to Japanese yen 1.02 trillion.

Chip sales at Sony Corp, the world's second-largest consumer-electronics maker, slumped 7.5 percent in the three months ended June 30 while Fujitsu Ltd's semiconductor sales slumped almost 25 percent in the period to Y79 billion.

Toshiba and Hitachi, Japan's first and third-largest chipmakers respectively, are becoming accustomed to dire predictions for the chip industry. According to Dataquest Inc, sales slumped 32 percent worldwide to US$154.9 billion in 2001, the biggest drop ever. Sales will probably rise just 3.4 percent this year, Dataquest said earlier this month.

Tokyo-based Toshiba and Hitachi cut thousands of employees and closed unprofitable plants. Executives at both companies said in April that the reorganization of their businesses -- Toshiba went so far as to sell its US memory-chip business to Micron Technology Inc -- would assure a recovery even if chip sales don't improve.

Toshiba said in April that last fiscal year's job cuts and plant closings would reduce fixed costs by Japanese yen 180 billion in the year ending March 2003 and onwards. Hitachi calculates Japanese yen 200 billion in savings beginning this fiscal year.

"Cost-cutting [mainly from job reductions] is the only certain factor that will help them make profit this year," said Yoshihide Ohtake, an analyst at Shinko Securities Co, who covers Japanese chipmakers.

So far, Japan's top five chipmakers have said they're confident they can weather a slowdown in chips for computers and mobile phones. Their answer: chips for consumer electronics such as DVD players and digital cameras made by companies like Matsushita Electric Industrial Co and Sony Corp.

In a sign that bet may be paying off, first quarter sales to customers at Sony's electronics business rose 5.5 percent, contributing to a surge in operating profit to Japanese yen 49.1 billion at the division.
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