Cheaper chips hit Toshiba in third quarter

Toshiba on Monday reported a 94 per cent fall in operating profits in the third quarter to December 31 and warned that full-year results would fall short of expectations due to sharp price falls in semiconductors used in digital consumer products.

Operating profits for the group, which makes everything from semiconductors to vacuum cleaners, fell to Y900m ($8.7m) on sales of Y1,370bn, primarily due to a sharp drop in flash memory chip prices.

Toshiba said that full-year operating profits would be16 per cent below the previous forecast at Y160bn, and net profits would be 10 per cent lower at Y45bn, on moderately weaker sales of Y5,860bn.

The Toshiba results addto a growing list of poorfigures from Japanese high-tech companies, which have been caught off-guard bythe sharp erosion in prices. Sony, NEC and Fujitsu have all lowered their full-year forecasts.

Toshiba said its PC business, which had been seriously hurt by discounting in the US, returned to profitability in the third quarter, helped by cost cuts and the popularity of a new model with audio-video features.

The PC business is now expected to make a profit of Y6bn in the year, compared with a Y47.4bn loss last year.

However, the steep price falls in the digital consumer electronics market spilled over to component manufacturers, with prices for flash memory chips previously a cash cow for Toshiba dropping 20 per cent in the third quarter despite firm demand. Flash memory chips are widely used in mobile phones and digital cameras.

Toshiba's semiconductor business was also hurt by sharp price falls in the TV and DVD market, which in turn pushed down prices of its system LSI chips.

? The drop in digital prices also undermined results at Pioneer, which suffered a 90 per cent fall in third-quarter operating profits and warned that full-year operating profits would be 93 per cent below its previous estimate, at Y2bn, rather than Y27bn.

Sanyo, Fuji Photo Film and Olympus, leading suppliers of digital cameras, also all reported lower third-quarter results. However, all three said they would cut costs to achieve their full-year forecasts.

Sanyo's operating profit fell 64 per cent to Y10.3bn and combined with the damage incurred by its semiconductor facility due to the Niigata earthquake in October, this led to a Y17.6bn net loss in the third quarter.

Fuji Photo Film suffered a 10 per cent drop in its digital camera prices, although the larger factors behind its weak results were the downturn in conventional film camera sales and higher raw material costs.

Operating profits fell 18 per cent to Y43.6bn.

Olympus suffered a 47 per cent drop in operating profits to Y26bn.

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