Toshiba Looks to Cut Costs as NAND Flash Memory Prices Fall

TOKYO, 29th January (Reuters) – Japan’s Toshiba plans to cut costs by £2.3 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.

The chip sector problems led fellow Japanese semiconductor maker NEC Electronics Corp to warn of its biggest annual operating loss this business year.

Semiconductor makers have slashed output to revive prices, but anaemic consumer demand in a deep economic slump has capped price gains, forcing German chipmaker Qimonda to file for insolvency and some firms to seek government support.

Toshiba said it would halve capital spending in the year starting on April 1 by delaying construction of two new flash memory chip plants and reining in LCD ramp-ups.

It also plans to eliminate 4,500 contract worker positions, while it will rehire 500 contract workers 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’s iPod and in mobile phones.

But with research firm iSuppli saying the global flash memory market has likely shrunk by a third in the last quarter, Toshiba now plans to strengthen its nuclear plant, lithium-ion battery and other promising businesses.

“Besides the global recession and a firm yen that are affecting everyone, we also face the slump in the chip sector,” Corporate Executive Vice President Fumio Muraoka said at a news conference. “We are being hit by a triple punch.”

EYEING CONSOLIDATION

Toshiba warned of an operating loss of 280 billion yen for the year to March 31, versus its previous forecast for a 150 billion yen profit. It would be its biggest loss ever and its first operating loss in seven years.

Toshiba, whose products include PCs, TVs and refrigerators, reported an October-December operating loss of 158.8 billion yen against a profit of 42.1 billion yen a year earlier.

It posted a net loss of 121.1 billion yen on sales of 1.49 trillion yen.

Domestic peer NEC Electronics, which makes chips for Nintendo’s Wii game console and for Toyota Motor’s Lexus luxury car, also warned it would fall into a full-year operating loss, slamming recovery prospects at the NEC subsidiary.

It now expects an operating loss of 55 billion yen in the year to March, against its previous projection of a 1 billion yen 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 yen, said it would cut costs by $890 million over two years, eliminating 1,200 contract jobs.

Toshiba chief executive Atsutoshi Nishida said that too many chip makers, especially those who make system chips, are fighting it out in Japan and that they need to consolidate to win globally.

“Our survival will be the Japanese semiconductor industry’s survival,” he told a briefing. “We will aggressively push for industry reorganisation.”

He said Toshiba aimed to return to profits in its chip business in October-March next business year when market conditions will likely start to recover.

Toshiba also said it has agreed to buy part of U.S. partner SanDisk Corp’s 300 mm wafer-line production facilities to meet future demand growth.

Toshiba will also move around system chip manufacturing bases in Japan and shift more assembly overseas to cut costs, while it would shut some LCD production lines and reduce groupwide research and development spending by 20 percent in 2009/10.

Ahead of the results, Toshiba’s shares closed up 3.5 percent and NEC Electronics edged up 0.3 percent, while the broader market rose 1.8 percent.