Japan's technology giants slashed losses or were back in the black in the December quarter thanks to restructuring efforts, but warned tough times were ahead due to weak demand and the growing prospect of war in Iraq.
Fujitsu Ltd and rival NEC Corp cut sales forecasts for the full year to March, while Hitachi Ltd, Toshiba Corp and Mitsubishi Electric Corp clung to projections but offered similar notes of caution.
"The business environment in the fourth quarter and beyond still looks severe," said Okasan Securities analyst Koichi Fujimoto.
"In a word, you can't be optimistic yet."
Japan's high-tech industry, still a global pioneer, embarked on a major overhaul after the information technology bubble burst in 2001, with firms scrambling to cut costs, streamline operations and lay off staff.
Major restructuring efforts helped earnings improve in the three months to December -- not an increased demand for technology, said Toyo Securities analyst Tomohisa Nonomura.
"The environment remains difficult," he said.
Hitachi and Mitsubishi Electric posted gains in the third quarter, but warned semiconductor sales were still sluggish.
"Demand for semiconductors for PCs is still on a declining trend. Overall, demand has not recovered fully," said Mitsubishi Electric executive director Yukihiro Sato.
"Sales of some semiconductor products, such as system LSIs [large-scale integrated circuits], are not increasing as we expected," he told reporters last week.
Toshiba, NEC and Fujitsu narrowed net losses sharply over the third quarter with only Fujitsu expecting to remain in the red for the full year.
Toshiba said revived demand for technology in Asia prompted the firm to increase capital spending on chip operations by 32 percent this year to Japanese yen 66 billion (US$550 million) from a previous estimate.
In contrast, NEC and Fujitsu cut revenue forecasts for the full year to March due to concerns about sluggish orders.
NEC also had to work out the cost of a record recall of mobile phones sold domestically through Japan's top mobile phone operator NTT DoCoMo Inc.
"The problem with the DoCoMo recall might hurt earnings in the fourth quarter," warned Nonomura from Toyo Securities.
Fujitsu, seen as the weakest of the five companies, still faced a lot of trouble in the domestic market, he said.
Vice president Takashi Takaya insisted Fujitsu would limit full year losses as predicted.
But the firm was downbeat about future prospects, even while noting a resurgence in some Asian economies and signs that investments by North American and European telecoms carriers may have bottomed out.
"These glimmers of light are being overshadowed in the immediate term by increasingly uncertain consumer spending and corporate investment attitudes due to rising tensions between the US and Iraq," the firm said.
To survive in the increasingly competitive global market, Japan's five high-tech leaders have been consolidating and spinning off businesses.
Hitachi announced it would withdraw from unprofitable operations accounting for a fifth of its revenue over the next two years.
Separately, the company and Mitsubishi Electric are formulating plans to merge their system-LSI divisions on April 1. Mitsubishi has plans to transfer its DRAM arm next month to Elpida Memory Inc -- a joint venture with Hitachi and NEC -- to become Japan's sole DRAM chip manufacturer.
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