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Toshiba backs off on job cuts

Toshiba Corp President Tadashi Okamura says he's open to any plan that makes Japan's biggest chipmaker profitable after seven quarterly losses. Investors say he's not paying enough attention to job cuts.

"Toshiba shouldn't be so reluctant to lay off workers or close inefficient businesses," said Makoto Kikuchi, who helps manage ?500 billion (US$4.1 billion) at PCA Asset Management Co.

Toshiba cut 6 percent of its 177,000 workers in the year ended March, helping it return its semiconductor operations to profit.

Other units, which make refrigerators, X-Ray machines and nuclear power plants, are suffering from shrinking demand.

"We're looking at every possibility," including sales of businesses and joint ventures, Okamura said in an interview. Yet job cuts on the scale of last year aren't likely, he said.

Toshiba's poor results are taking a toll on the company's shares and bonds. Its stock slumped 72 percent from their June 2000 peak. Toshiba 2.08 percent bonds, maturing in 2008 and denominated in yen, are bid at about 0.53 percentage points more than similar maturity Japanese Government Bonds, the Japan Securities Dealers Association says. That's up from 0.48 percentage points Oct. 1.

The company's shares fell ?4, or 1.1 percent, to 367 as of the 11am close on the Tokyo Stock Exchange.

Analysts are split on Toshiba shares. Of 25 recommendations monitored by Bloomberg data, 13 are buys, nine are holds and three sells.

Okamura's main turnaround success has been chipmaking. To return the unit to profit, Toshiba stopped making dynamic random access memory chips for computers and retooled its plants for memory chips used in digital cameras and cell phones.

After exiting the DRAM market, semiconductors account for 16 percent of Toshiba's sales. Toshiba had a Y19 billion profit in the three months ended Dec. 31, helping narrow its group net loss to ?6.9 billion from ?84.9 billion a year earlier.

Toshiba benefited from supplying microprocessors it developed as the main chip for Sony Corp's PlayStation2 video-game consoles in 2000. Its chipmaking business is Japan's most efficient, analysts say.

The unit's profitability has drawn suggestions from analysts such as Credit Suisse First Boston's Noriya Nishi that it should be spun off into a separate business, offering shareholders the chance to invest in the one part of Toshiba that is making money.

Okamura rejects such suggestions. Chips are Toshiba's "core business," he said. "We will never spin off the chip unit."

Chipmaking remains a high-risk business because companies need to keep spending to stay competitive, analysts say. Toshiba's ability to fund its chip operations is a reason Standard & Poor's rates Toshiba BBB-, its lowest investment grade. Moody's Investors Service has a negative outlook for its Baa1 rating on Toshiba, meaning it's likely to reduce the rating.

Toshiba had ?1.8 trillion of debt as of Sept. 30. About a 10th of that -- ?186.7 billion -- is due in the next 12 months.

"It's risky to have the volatile chip business as the core business when Toshiba's earnings capacity is fragile," said Naoki Takahashi, a credit analyst at Moody's.

Some 60 percent of Toshiba's total sales are in Japan, where customers have cut spending amid a decade-long economic slump.
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