Toshiba succumbs to economic slump

TOKYO, Japan -- Chipmaker Toshiba Corp. is the latest high-tech giant to fall prey to the global economic crunch, slashing its profit hopes by 30 percent.

The second-ranked Japanese computer chipmaker cut its 2000-2001 profit outlook Tuesday to 96 billion yen (820.5 million dollars), and slashed 20 percent off its forecast operating profit to 230 billion yen.

Falling memory chip prices and a slump in demand for personal computers were blamed for the downgrades -- the latest in a string of negative announcements from the global high-tech sector.

"Entering into the latter half of the business year, PC prices and sales volume fell in the United States due to the slowdown in the U.S. economy," said Toshiba in a press statement.

"At the same time, sales of electronic devices have become sluggish due to a bigger drop in DRAM prices than expected and diminishing growth in digital products."

Few analysts surprised

Few analysts were surprised by the announcement, which had been foretold in a slew of downward revisions in analysts' profit estimates in recent weeks.

Toshiba becomes the latest high-tech group to cite slowing economic conditions as a reason for downgrading its profits. Other companies to have warned of worse-than-expected results include U.S. giants Xerox, Intel and Motorola.

While Toshiba's profit warning was announced after the market closed, shares slumped to a 14-month low of 710 yen during the day after Tuesday's Nihon Keizai Shimbun newspaper predicted Toshiba would cut its group net profit estimate to 100 billion yen, from an October forecast of 137 billion yen.

Toshiba shares recovered slightly at the end of trading, but ended the day 3.91 percent lower at 713 yen.

Shares weaker through January

Tuesday's slump helped drive down the broader Nikkei composite index.

Toshiba shares have dropped almost 15 percent since January 19.

But analysts said that even with a further drop in profits expected in 2001-2002, much of the bad news was already factored into the share price and Toshiba may soon start to look cheap.

"Even facing a profit drop of 10 percent (next business year), if it looks like there'll be a recovery after that, including restructuring measures and such, I think a view could emerge that the shares are relatively cheap," said Nikko Salomon Smith Barney analyst Hiroshi Yoshihara.

Goldman Sachs analyst Ikuo Matsuhashi, who has Toshiba on his recommended list, also said the shares are beginning to look like a bargain.

"Short-term momentum is weak"

But, he warned: "For now the short-term momentum is weak, so it doesn't seem to be the sort of situation where (investors) would reassess the share price."

Even after the downward revisions, Toshiba's earnings estimates for 2000-2001 are still a marked improvement on a 1999-2000 group net loss of 32.9 billion yen, a figure that was adjusted higher in October to reflect the adoption of U.S. accounting standards.

And analysts said the company is making the right moves to reduce its exposure to the DRAM chip market and move into the production of more value-added items.

"They're already increasing outsourcing (of DRAMs), while putting their strength into flash memory and system LSI chips," Nikko Salomon's Yoshihara said. "They're already addressing the problem."

Reuters contributed to this report.

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