Toshiba back on track despite losses

SAN JOSE, Calif. - Not long ago, Toshiba Corp.'s prospects were dim.

In 2008, Japan's Toshiba scrapped its efforts in the HD DVD arena. At the time, the NAND flash market was in a major downturn. Toshiba's  digital products, including disk drives, cellphones and TVs, were in the red. And even its nuclear power business was failing to fuel anticipated growth.

Toshiba's sales are projected to remain somewhat flat this year, but it is expected to narrow its loss for fiscal 2010, with plans to move into the black in fiscal 2011. Amid an aggressive cost-cutting campaign, Toshiba is also seeing its various businesses-such as NAND, LCDs and nuclear plants-back on track.  

Toshiba sells semiconductors, industrial power systems, LCD TVs, notebook PCs, and small LCDs. Minor products are home appliances, medical systems, other digital products, and a host of industrial-related products.

Toshiba lost 344 billion yen ($4.1 billion) on sales of 6.655 trillion yen ($79.9 billion) in fiscal 2009. Toshiba is projected to lose 20 billion yen ($240 million) on sales of 6,382 billion yen ($76.6 billion) in fiscal 2010, which ends March 30, 2011. Toshiba is projected to make 70 billion yen ($840 million) on sales of 7,000 billion yen ($84 billion) in fiscal 2011, according to MF Global Co.

''Toshiba reduced fixed costs by 430 billion yen ($5.1 billion) last year mainly in its LCD and chip businesses, including the shutdown of several LCD and non-memory chip plants, as well as a shift in production offshore,''said David Rubenstein, an analyst with MF Global, in a report.

As reported, Toshiba has cut its IC-assembly capacity. And its logic IC unit is going fab lite. The company's so-called Logic LSI Division will expand its outsourcing of cutting-edge products, including 40-nm chips, to multiple foundries from fiscal year 2011, according to Toshiba.   

As part of the strategy for transforming its system LSI business and ''securing an asset light business model,'' Toshiba recently signed a memorandum of understanding with Sony Corp., expressing the intent to dissolve Nagasaki Semiconductor Manufacturing Corp. (NSM) and to transfer 300-mm wafer fabrication lines
there from Toshiba to Sony. 

For now, NAND is the shinning star at Toshiba. ''NAND flash memory tailwinds in smart phones and tablets should enable Toshiba to exceed earnings expectations in our view,'' Rubenstein said. Toshiba has over 30 percent global market share in NAND flash.

''We estimate that NAND as a percentage of total OP will rise to 43 percent in FY3/11 from 29 percent in FY3/010 and large losses in FY3/09. The rise in profits should continue next year in our view, given that NAND demand is robust and supply is rather limited,'' he said.

''Samsung, Toshiba, and others are adding capacity more aggressively in 2011. However, we envision the demand/supply balance remaining fairly tight in 2011, although conditions should loosen in the 2H of the year as the new equipment comes online. Toshiba will add new equipment to its Yokkaichi plant number five in 2011. Samsung will add new wafer capacity at fab number 16 as well,'' he said. Hynix Semiconductor Inc. and Micron Technology Inc. are also expanding in NAND, it was noted. 

''We predict that total bit production will rise 71 percent in 2011 as capex accelerates in the next two quarters. Capacity utilization has been near 100 percent for the past several quarters,'' he said.

Toshiba's other businesses are on track. ''Small LCD panel demand is booming for smart phones, allowing for the first black ink in four years. Mobile phones and HDD businesses have been consolidated with those of Fujitsu, which is a large opportunity to reduce cost and access synergies,'' he said.

''Nuclear power systems is a mid-term earnings growth driver for Toshiba, as the acquisition of Westinghouse gives it scale merit and better access to global utilities. Coal and oil prices have been on a rising trend, which
increases the viability of non-fossil fuels,'' he said. ''Furthermore, we believe the green energy theme will not abate in the next decade as pollution and global warming continue to degrade the environment for global citizens.''