Toshiba hitches ride on Apple cart to drive rebound

TOKYO Mon May 7, 2012 3:16pm EDT

A man walks past Toshiba Corp's Regza liquid-crystal display (LCD) televisions at an electronic store in Tokyo January 31, 2012. REUTERS/Toru Hanai

A man walks past Toshiba Corp's Regza liquid-crystal display (LCD) televisions at an electronic store in Tokyo January 31, 2012.

Credit: Reuters/Toru Hanai

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TOKYO (Reuters) - Unlike many beleaguered constituents of Japan Inc, Toshiba Corp, has reason to feel cheerful about ballooning sales at Apple Inc - millions of the iPhones it sells are loaded with NAND flash memory made by Japan's last big chip maker.

At times as much as two-thirds of memory chips churned out by Toshiba's plants in Japan will end up in iPhones, analysts estimate. That demand is underpinning income at Toshiba and will likely mean the world's No. 2 maker of NAND flash chips behind Samsung Electronics will forecast a rebound in operating profit for the business year just started.

"Apple is probably their largest customer and depending on the time of the year when Apple procures from Toshiba I suspect it could be as high as 70 percent," said Damian Thong, an analyst at Macquarie in Tokyo.

"The next contributor to growth of NAND flash at Toshiba, one of them, will probably be the ramp-up for the next iPhone."

Operating profit in the twelve months from April 1 will rise to 281.9 billion yen ($3.5 billion), according to an average estimate of 22 analysts surveyed by Thomson Reuters I/B/E/S. For the business term just ended, with earnings crimped by a strong yen, Toshiba expects to report on Tuesday a profit of 200 billion yen.

INSATIABLE APPLE

Market researcher IHS iSuppli estimates an insatiable Apple, which sold 35 million iPhones in the three months to March 31, will consume a quarter of global flash memory supply this year. Market revenue will, IHS iSuppli predicts, jump 8 percent to $23 billion.

"We believe Apple's strong results are positive for Toshiba," Goldman Sachs' analyst Ikuo Matsuhashi said in a report. Second quarter iPhone "shipments surpassed consensus projections", he noted.

Toshiba's ability to surf the Apple wave is a rare bright spot among Japan's big electronics firms, most notably Sony Corp, that have struggled to contain their market-grabbing U.S. rival. Apple's anticipated move into television may further dent the appeal of Japan's once stellar brands, while the growing allure of Apple's devices to gamers represents a new threat to console maker Nintendo.

The "Toshiba-inside" approach - which focuses on making money from components rather than branded consumer electronics - means that losses from its own branded gadgets are less debilitating than mounting deficits at the TV units of Sony, Panasonic Corp and Sharp Corp. The trio estimate a combined loss of $21 billion for the business term just ended.

Investors will be looking, too, for solid performance from Toshiba's other businesses, allowing flash memory to drive profit growth, analysts note. Semiconductors account for less than 20 percent of revenue.

Like other Japanese conglomerates, Toshiba's business interests are expansive. It makes products ranging from TVs, laptops, light bulbs and refrigerators to nuclear reactors, CT scanners, sewerage plants and escalators.

And tying its longer-term fortunes to Apple's cart alone, however, will not be a guarantee of success.

Taiwan's Hon Hai Precision Industry on April 30 demonstrated the downside to being an Apple supplier. It's operating margin in the January-March quarter eroded to a mere 0.9 percent while Apple's was 39.3 percent.

"Apple is obviously a tough customer with tremendous buying power so there is the possibility that Apple will drive a hard bargain," noted Macquarie's Thong.

($1 = 79.8800 Japanese yen)

(Reporting by Tim Kelly; Editing by Alex Richardson)

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