Japanese electronics group Toshiba posted a worse-than-expected 25 percent drop in quarterly operating profit after tumbling flash memory chip prices ate into margins.
The world's No. 2 NAND flash memory chipmaker now expects further microchip price falls in January-March, as
"Samsung is focusing more on flash, and Toshiba is the one feeling the pinch," said Tomomi Yamashita, a senior fund manager at Shinkin Asset Management.
The resulting price falls halved Toshiba's operating margin
"That hurts," Executive Vice President Fumio Muraoka said at a news conference. Toshiba now expected a 50 percent annual price drop in its flash prices this business year from a previously estimated 40 percent drop, and it expected NAND spot prices to fall a quarterly 20 percent in January-March, he said.
NAND flash memory chips, used for data storage in portable devices such as Apple's iPod digital media players, accounted for roughly half Toshiba's profit last year.
Profits were also slashed at two other Japanese tech companies that reported results on Tuesday, Advantest and NEC, while Elpida Memory reported a bigger-than-expected loss.
HD DVD blues
Toshiba, whose products range from washing machines to nuclear power plants, is also fighting
Toshiba slashed prices on its players by 40 to 50 percent after Time Warner's Warner Bros. studio announced this month that it would release high-definition DVDs
Toshiba stuck to its outlook for a $2.7 billion operating profit for the year to March, slightly lower than a consensus estimate of $2.74 billion by 13 analysts polled by Reuters Estimates.
Strong sales for PCs, industrial systems, and medical devices, as well as a boost from its newly acquired U.S. nuclear power unit Westinghouse, would make up for shortfalls in microchips
Toshiba, which been trimming its operations to focus on its core semiconductor and nuclear power businesses, said operating profit for October-December was $395.3 million against 55.9 billion yen a year earlier. The average forecast of five analysts was for an operating profit of $524.9 million.
Prior to the results, Toshiba shares ended Tuesday up 2.4 percent, against a 3.0 percent rise in the benchmark Nikkei average.
Aggressive spending
To grab market share and combat price falls with scale, however, chip makers are committing to further spending.
Toshiba has said it would decide about new NAND flash memory plants by 2009 in its race against Samsung's production capacity. The investment involved could total over 1 trillion yen.
DRAM maker Elpida also said it was considering spending $939 million of capital spending in the year starting April.
Elpida would spend 65 percent to 70 percent of that amount on cutting-edge lines using smaller circuitry, and the rest to ramp up production at Rexchip, a Taiwan joint venture with Powerchip Semiconductor.
"It is precisely because times are tough that it is essential that we squeeze costs and push forward development," Elpida President Yukio Sakamoto told analysts at a meeting.
Elpida tumbled to a deeper-than-expected quarterly loss of $83.57 million, against a $256.36 million profit the previous year. Analysts had estimated a loss of $29.1 million.
Elpida, which does not give a full-year earnings forecast, is banking on demand for specialty dynamic random-access memory chips to contribute to price recovery in March.
Uncertainty in the sector
Advantest, the world's largest supplier of microchip testers to chipmakers, posted a 88 percent decline in quarterly operating profit to $9.39 million as orders slowed.
The firm, which competes with Teradyne, halved its annual outlook last week as chip makers squeeze spending on testers.
Despite cost cuts at its chip unit, electronics group NEC also posted a bigger-than-expected 54 percent fall in quarterly operating profit to $150.24 million as Japanese wireless carriers delayed spending on base stations and handset sales remained sluggish.
NEC kept its outlook for operating profit in the full year to March 31 at $1.22 billion, slightly below a market consensus of $1.23 billion by 15 analysts.
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