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July 31, 2006 9:44 am

Toshiba and Hitachi profits beat forecast

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Japanese electronics makers Toshiba Corp. and Hitachi Ltd. both posted better-than-expected quarterly profits on Monday, with Toshiba benefiting from strong demand for flash memory chips and Hitachi booking a smaller loss on hard disk drives.

Both Hitachi and Toshiba, Japan’s two largest electronics conglomerates, stuck by their full-year forecasts for double-digit gains in operating profit.

Toshiba, the world’s second-biggest flash memory maker after Samsung Electronics Co., posted a group operating profit of 20.84 billion yen ($182 million) for April-June, compared with a 1.85 billion yen loss a year earlier.

The result beat a consensus estimate for a 13.9 billion yen profit by five analysts polled by Reuters and a prediction last week by the Nihon Keizai newspaper of 19-20 billion yen.

Demand for NAND-type memory, used in digital music players, cameras and other devices boosted earnings for Toshiba, which plans to beef up production of microchips with SanDisk Corp., to compete with Samsung and Micron Technology Inc., which has a venture with Intel Corp.

But Marc Desmidt, head of the Japanese large-cap equity team at Merrill Lynch Investment Managers, said he was worried about price competition in NAND-flash memory as well as Toshiba’s acquisition of power plant firm Westinghouse.

“Volumes are good, but I think (the) pricing environment might get a bit weaker. You’re seeing a bit of a slowdown with Apple,” Desmidt said, refering to Apple Computer Inc., which uses flash memory in its popular iPod music players.

“There’s that and I think there’s still some lingering concerns over the price that they’re paying for Westinghouse.”

Toshiba has agreed to be the lead investor in a $5.4 billion acquisition of Westinghouse from British Nuclear Fuels.

Toshiba’s sales in April-June rose 11.9 percent to 1.45 trillion yen.

It maintained its full-year forecast for operating profit to rise 10 percent to 265 billion yen, which is in line with the market consensus.


Hitachi, a sprawling company with more than 355,000 group employees, posted an April-June operating profit of 17.14 billion yen ($149.7 million), up from 1.29 billion yen a year earlier, helped by a smaller loss in its ailing hard disk drive business and higher sales of small and medium-sized displays.

That beat a consensus estimate for a 5.4 billion yen profit by four analysts polled by Reuters.

Hitachi, which competes with Panasonic maker Matsushita Electric Industrial Co. Ltd. in plasma TVs and with Seagate Technology in hard disk drives, also profited from improved earnings at subsidiaries hydraulic shovel-maker Hitachi Construction Machinery Co. and chip-making equipment supplier Hitachi Kokusai Inc.

Sales rose 9.7 percent to 2.25 trillion yen from the year-ago period.

Hitachi is still struggling to turn around three loss-making businesses -- its display, flat-panel TV and hard disk drive operations -- and it said on Monday that it could not promise its flat TV unit would turn profitable in the second half.

Hitachi has said it would turn these three operations back to profit in the fiscal second half, helping it raise operating profit to 290 billion yen for the full year to March, a forecast that is in line with analyst expectations.

Strong global demand for plasma TVs helped boost rival Matsushita to its highest first-quarter profit in nine years, spurring it to lift its first-half operating profit. Hitachi may also face additional costs arising from faulty turbine blades found at Chubu Electric Power Co. Inc.’s Hamaoka No. 5 reactor.

Hitachi shares fell 9.2 percent in April-June, underperforming Tokyo’s electrical machinery index, which fell 7.5 percent, and Toshiba’s rally of 9.2 percent.

Hitachi’s stock closed up 1.38 percent at 734 yen ahead of the results, while Toshiba gained 1.37 percent to 741 yen, and the industry sub-index ended 1.08 percent higher.

© Reuters Limited. Click for restrictions

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