Sat, Apr 27, 2002 page19

• Toshiba's Okamura needs new products after DRAM

  Finding focus will be hard, because the Japanese company makes everything from notebook computers and semiconductors to elevators, vacuum cleaners and electric power plant equipment

  • BLOOMBERG
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  The fact that Tadashi Okamura wasn't involved in making Toshiba Corp the world's biggest memory-chip maker a decade ago may explain why he was brave enough to scrap the business last year as it slid deeper into losses.

  Investors say Okamura's 40 years of experience marketing factory-automation equipment may not help much in his next big challenge -- finding new sources of revenue.

  

  An employee of Japanese electronics giant Toshiba displays a prototype of the Bluetooth wireless communication headset, weighing less than 100g, which enables a user to control computers by voice using a wearable computing unit, at the company's laboratory in Tokyo, last week. Toshiba is expecting to put it on the market this year.

  PHOTO: AFP

  Toshiba needs to regain its competitive edge in the semiconductor industry with new chips, become a leading brand in digital consumer electronics and reverse a decline in finances that's seen its credit rating slip, they say.

  "Not knowing about chips made Okamura a messiah -- he's really trying to reform," said Hiroyoshi Nakagawa, chief investment officer at SG Yamaichi Asset Management Co, which holds US$21 billion in assets including Toshiba shares. His bigger challenge, he adds, "is to show investors how Toshiba can come up with strong products."

  Toshiba said Thursday its group loss was a lower-than-expected Japanese yen 46 billion (US$355 million) in the three months ended March 31, compared with Japanese yen 31 billion net income a year earlier. Toshiba's memory-chip unit probably had a US$1 billion loss in the fiscal year.

  Okamura, an ex-rugby player who likes to read books on how Samurais managed their lands in the 16th century, has spent most of his first two years as president cleaning up Toshiba's house.

  Toshiba, which employed 188,000 workers as of March 2001, spent Japanese yen 190 billion last fiscal year to pare its workforce, contributing to an annual loss of Japanese yen 254 billion. The cuts are part of an effort to reduce Toshiba's staff 10 percent by March 2004 and shutter unprofitable factories.

  Leaving the memory-chip business would have been a harder decision for executives that experienced the company's glory days.

  Toshiba was the biggest producer in the industry between 1989 and 1991, helping Toshiba to post a record profit of Japanese yen 132 billion in the year ended March 1990 and its share price to soar to a record high of Japanese yen 1,470 in June 1989.

  The plunge in Toshiba's stock to Wednesday's close of Japanese yen 575 came partly as South Korean and Taiwanese companies piled into the business, producing more chips than the market needed.

  The spot price of 128-megabit dynamic random-access memory (DRAM) chips, the main memory in personal computers, plummeted 80 percent to US$1 in November from the beginning of last year. The price has since tripled from the trough to US$3.63.

  "It doesn't make sense to keep a business whose earnings are so volatile," Okamura, 63, told Bloomberg News two weeks after announcing the company would sell its US memory-chip unit. "I'm so relieved to terminate the business."

  While Okamura announced the sale of Toshiba's US DRAM plant to Micron Technology on Dec. 18, it will still make memory chips for Sony Corp's Playstation 2 game consoles, with the price set at a fixed percentage premium over production costs to guarantee profits.

  "Having an exclusive contract with a strong customer like Sony Corp is good," said Sadaji Shibata, general manager at Daiwa Asset Management Co, which manages Japanese equities including Toshiba shares.

  "There is no price competition there," he said.

  Toshiba's shares jumped 25 percent since the DRAM business sale, outperforming the 13 percent rise of the Topix Electric Appliances Index. Domestic rival Hitachi Ltd's shares rose just 1 percent.

  For the stock to rise further, investors say, Okamura needs to push out new products that can gain a top-three market share.

  Finding focus will be hard, investors say, since Toshiba makes everything from notebook computers, semiconductors, elevators, vacuum cleaners and electric power plant equipment, to liquid-crystal displays.

  "Toshiba doesn't have a core business," said Fumiaki Sato, an analyst at Deutsche Securities Ltd, who rates Toshiba's shares "underperform." "It's not clear what Toshiba wants to strengthen."

  Okamura has already started sifting through the product range. Toshiba stopped producing CD-ROM disk drives at its Philippines plant in December last year. He shifted production of cathode-ray tube monitors for PCs and televisions from Japan to Thailand and China. The company may build a large-scale factory in China that would make Dynabook laptop PCs and digital consumer electronics.

  Okamura also decided to merge Toshiba's LCD business with that of Matsushita Electric Industrial Co to cut development and production costs and compete with South Korean rivals such as Samsung Electronics Ltd.

  He's expanding other areas. Toshiba, Sony and International Business Machines Corp said they will together develop processor chips for digital consumer electronics such as DVD players.

  Toshiba already makes processor chips for PlayStation 2, dubbed emotion engines, with Sony.

  "Okamura's on the right track, but he has to do more," Daiwa's Shibata said.
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