Japan's Toshiba Corp plans cost cuts by $3.3 billion next business year by slashing capital spending and contract jobs, as the chip sector doldrums and a global slowdown put the electronics group on course for its worst-ever annual loss.
Toshiba, the world's No.2 maker of NAND flash memory, and industry leader Samsung Electronics are struggling in a near two-year sector downturn, caused by chronic oversupply and weak demand for digital cameras and other electronic gadgets.
Semiconductor makers have slashed output to revive prices, but anemic consumer demand in a deep economic slump has capped price gains, forcing some firms to seek government support.
Toshiba said it would halve capital spending in the year starting on April 1 by delaying construction on two new flash memory chip plants and reining in LCD ramp-ups.
It also plans eliminate 4,500 jobs of contract workers, of whom 500 will be rehired as regular employees in its one profit-making business comprising its power plants and elevators.
But further cuts could limit future growth and market share, analysts said.
“Restructuring alone won't help companies in today's economic conditions,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management. “If companies cut jobs or shrink capital spending based on their current earnings level, they risk narrowing their business capacity.”
Toshiba has rejigged its operations in the past few years, pooling resources to focus on its NAND flash memory chips - used in digital music players such as Apple Inc's iPod and in mobile phones.
The global flash memory market shrank by a third in the last quarter from a year earlier, according to research firm iSuppli.
The electronics group is being hit by a triple punch from the global recession, a firm yen and the chip sector slump, Corporate Executive Vice President Fumio Muraoka said at a news conference.
The company warned of an operating loss of ¥280 billion for the year to March 31, versus its previous forecast for a ¥150 billion profit. It would be its biggest loss ever and its first operating loss in seven years.
Other technology firms have also buckled under the weight of diving prices and as consumers rein in spending.
Toshiba, whose products include PCs, TVs and refrigerators, reported an October-December operating loss of ¥158.8 billion against a profit of ¥42.1 billion a year earlier.
It posted a net loss of ¥121.1 billion on sales of ¥1.49 trillion.
Domestic peer NEC Electronics Corp, which makes chips for Nintendo Co's Wii game console and for Toyota Motor Corp's Lexus luxury car, also warned of its fourth straight year of operating loss.
The deteriorating economy slammed prospects for a recovery at the restructuring subsidiary of electronics maker NEC Corp.
It now expects an operating loss of ¥55 billion in the year to March, against its previous projection of a ¥1 billion profit, amid shrinking sales of automobiles, liquid crystal display TVs, mobile phones and other products that use its chips.
NEC Electronics, which posted a quarterly operating loss of ¥16.2 billion, said it would cut costs by $890 million over 2 years, eliminating 1,200 contract jobs.
Samsung Electronics Co logged its first ever quarterly loss this month, thanks largely to big losses from its chip unit.
The situation for dynamic random access memory (DRAM) chips, mainly used in PCs, has been even worse.
Last week, German chipmaker Qimonda, which controls about 10% of the global DRAM market, became the first major chipmaker to file for insolvency.
Talks to consolidate Taiwan' chip sector are heating up. Japan's Elpida Memory is discussing a possible merger with Powerchip, ProMOS Technologies and Rexchip.
Toshiba, which like its rivals is cutting output, said it would buy part of US partner SanDisk Corp's chip facilities. It may also shut some chip assembly plants in Japan and delay the construction of two new domestic factories by more than a year, executives have said.
Ahead of the results, Toshiba's shares closed up 3.5% and NEC Electronics edged up 0.3% while the broader market rose 1.8%. (Reuters)