January 31, 2007 / 6:17 AM / 13 years ago

Toshiba, Fujitsu hit by price falls, outlook rough

TOKYO (Reuters) - Japanese electronics group Toshiba Corp. (6502.T) and Fujitsu Ltd. (6702.T) said quarterly operating profit dropped on sharp price falls in microchips and hard drives, and forecast steeper price declines to come.

Toshiba Corp. President and CEO Atsutoshi Nishida talks to reporters at the Toshiba headquarters in Tokyo October 17, 2006. Japanese electronics group Toshiba Corp. said its quarterly net profit jumped on stock sales and raised its outlook despite chip price falls, while Fujitsu Ltd. posted a sharp fall amid severe price competition in hard drives and lowered its sales outlook.REUTERS/Toshiyuki Aizawa

Like its rivals, Toshiba, the world’s second-biggest maker of NAND-type flash memory, said the pace of NAND price falls would pick up even more in January-March. It expects chips to be 70 percent cheaper by the end of March than they were a year ago.

NAND maker Hynix Semiconductor Inc. (000660.KS) of South Korea on the same day said it expected prices to fall by a third in the current quarter alone.

Toshiba, which is betting big on nuclear energy with its purchase of a stake in U.S. Westinghouse, cut its operating profit forecast for the year to March to 250 billion yen ($2.1 billion), down 7.4 percent from its October forecast and below a consensus estimate of 262.3 billion yen by 18 analysts polled by Reuters Estimates.

“The chip market is a race against very quick price falls,” Toshiba Director Fumio Muraoka told reporters. “It’s going to be tough.”

Toshiba’s operating profit came to 55.91 billion yen in the quarter ended December 31, down 12 percent from the year-earlier period.

But after logging gains of 55 billion yen from sales of its stakes in group firms Toshiba Ceramics Co. 5213.T and GE Toshiba Silicones Co., the company posted a quarterly net profit of 72.43 billion yen, triple last year’s.

Toshiba seeks to focus more resources on NAND and nuclear power, but that strategy is making the company vulnerable to price falls as NAND awaits the next killer application to follow Apple Inc.’s (AAPL.O) iPod.

Toshiba plans to bet 1 trillion yen on chips in the three years to March 2009 to catch up with South Korean rival Samsung Electronics Co. Ltd. (005930.KS), and Fujitsu is seeking synergies between its consulting business and sales of its servers and hard drives.

Before the earnings announcements, Toshiba shares closed down 1.3 percent and Fujitsu shares closed down 1.52 percent, while the benchmark Nikkei average .N225 fell 0.6 percent.

Fujitsu, Japan’s fourth-largest electronic conglomerate and developer of the Tokyo bourse’s trading system, said its operating profit fell to 7.12 billion yen, down 43.5 percent from the previous year, as price falls negated record unit sales of hard drives and servers.

The company lowered its sales forecast to 5.1 trillion yen, down from an October forecast of 5.2 trillion yen, while keeping its profit forecasts, near market estimates.

Fujitsu is eyeing increased spending by Japanese financial companies to make up for revenue falls due to price falls in mobile handsets and other hardware.

Investors want to see if Fujitsu will be able to raise software systems profits like domestic rivals Nomura Research Institute Ltd. (NRI) (4307.T) and NTT Data Corp. (9613.T), which are benefiting from brisk domestic IT orders, said Masayuki Kubota, fund manager at Daiwa SB Investments, adding that Fujitsu shares have underperformed its competition.

Toshiba shares gained 1.2 percent in the October-December period and Fujitsu lost 4.1 percent, while Tokyo's benchmark Nikkei average .N225 rose 6.8 percent.

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