Toshiba Corp's semiconductor business will post a loss for the fiscal first half ending Sept. 30 because of falling prices, forcing the No. 2 chipmaker to consider firing workers in Japan. The company's shares fell.
"Losses at our computer-memory chip business are extremely large," said Takeshi Nakagawa, president of Toshiba's semiconductor business. The chip company won't meet its annual profit target of ?50 billion (US$416 million), he said.
Japanese chipmakers are lagging US and European counterparts at cutting jobs and other costs to return to profit.
Germany's Infineon Technologies AG is cutting 5,000 jobs, or 15 percent of its workforce, while Motorola Inc is shuttering chip plants in Arizona and will eliminate 30,000 jobs this year.
"Investors are judging Japanese chipmakers like Toshiba by how drastically they propose to reorganize," said Ikuo Suzuki, a fund manager at Invesco Asset Management (Japan) Ltd, which holds Toshiba shares. Invesco manages ?300 billion in Japanese stocks.
Toshiba's semiconductor business, which makes chips for computers, mobile phones and digital cameras, had an operating profit of Yn72 billion in the first half a year earlier. The division accounts for 70 percent of Toshiba's operating profit and a fifth of the company's sales.
The company's shares fell ?26, or 4.3 percent, to 585.
Toshiba shares have lost a fifth of their value since the beginning of the year compared with a gain of about 0.3 percent for No. 1 chipmaker Intel Corp.
Together, Intel and Toshiba account for 18 percent of worldwide semiconductor sales, according to researcher Dataquest Inc.
Tokyo-based Toshiba may deal with losses at its chips division by reducing its workforce in Japan by firing workers or offering early retirement, Nakagawa said.
Chipmakers worldwide are being squeezed by falling prices.
Dynamic random-access memory chips, the main memory in personal computers, are hovering below production costs, resulting in losses recently at Toshiba rivals such as Micron Technology Inc and Hynix Semiconductor Inc.
The benchmark 128-megabit DRAM spot price is currently at US$1.66 compared with an average of US$6.48 the past year. The chips account for about 40 percent of Toshiba's DRAM production while semiconductors for Sony Corp's PlayStation 2 video-game console account for 17 percent.
The maker of the Dynabook and Libretto laptop computers will cut production of DRAMs by a quarter this month. Though the company will close a production line at one of its plants in Japan, analysts say more drastic measures may be needed.
"Toshiba needs to focus only on DRAMs for Sony's PlayStation 2" and withdraw from memory chips for computers, said Ryoji Yamawaki, an analyst with Shinko Securities Co, who rates the shares "neutral." To cope with lower prices, Toshiba may ally with foreign rivals to share DRAM development costs, Nakagawa said, without specifying possible candidates. However, Toshiba "is not interested in teaming with Japanese companies," he said.
Toshiba is currently developing memory chips for mobile phones with Infineon Technologies, the fourth-biggest DRAM maker.
Toshiba, the sixth-biggest, doesn't have alliances with Samsung Electronics Co, Micron or Hynix, the three biggest DRAM makers respectively. The three companies account for 62 percent of global DRAM revenue.
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