Taking a path already traveled by several other Japanese companies, Toshiba announced corporate-wide restructuring plans Monday that will see it focus on strong business sectors at the expense of unprofitable divisions and thousands of jobs.
The company, one of Japan's largest electronics makers, also revised down its financial forecast for the coming year, cutting its full-year consolidated net income forecast from a profit of 60 billion yen (US$500 million) to a loss of 115 billion yen.
Toshiba's action plan will hit hard at home. The company said it plans to close around one third of its 21 Japanese factories and one quarter of its 98 domestic manufacturing and engineering companies by the end of fiscal year 2003, which ends on March 31, 2004.
The company will lay off 10 percent of its global workforce of 188,000 employees by the same time. Layoffs will be most severe in Japan, where the company plans to cut 12 percent of its 144,000 staff, or 17,000 people. The announcement comes as further bad news for Japan's economy, where unemployment is rising at a record pace and the government is scrambling to put the brakes on the shrinking employment base.
Toshiba had forecast it would see an 8.2 percent rise in consolidated full-year net sales for the current fiscal year, which ends on March 31, 2002, but Monday revised this to forecast a drop of 3.8 percent to 5.75 trillion yen.
Similar cuts were made to the company's other full-year forecasts, with consolidated net income revised to a loss of 115 billion yen from a profit of 60 billion yen, and consolidated operating income revised from 200 billion yen to zero. In contrast, the company reported consolidated net and operating profits of 96.2 billion yen and 232.1 billion yen respectively last year.
Toshiba has fallen victim to the same steep downturn in IT spending that has hit many companies, both in Japan and overseas. The drop in spending has not just hit demand for the company's finished products, but also those of other companies which mean lower demand for Toshiba's semiconductor products.
At the end of April, when it announced its results for the financial year ended March 31, the company spoke of improving growth and credited it, in part, to higher demand for digital products and, in turn, semiconductors and liquid crystal displays (LCDs).
Monday the company said the slowdown in the U.S. economy is becoming a global phenomenon and is undermining demand for IT products. It singled out domestic demand for digital devices, the same products that it credited with helping boost results exactly three months ago, as being particularly low.
The company said it expects electronic devices and components sales to drop 22 percent to 1.2 trillion yen and for the sector to report a consolidated operating loss for the year of 120 billion yen against a previously forecast profit of 60 billion yen. Investment in new plant, machinery and other capital expenditure in its semiconductor sector is being slashed by almost half to 75 billion yen from 140 billion yen, and that in the LCD sector will be cut back to 35 billion yen from the planned 40 billion yen.
Toshiba is not alone. Fujitsu Ltd. announced a restructuring plan and the loss of 16,400 jobs exactly a week ago and NEC Corp. said in late July that it planned to restructure with the loss of 4,000 jobs, all from its semiconductor division.
Next to announce similar plans may be Hitachi Ltd., the largest of Japan's electronics manufacturers. Reports in several Japanese newspapers over the weekend said the company is on the verge of announcing a restructuring. The Asahi Shimbun said Hitachi will make large cuts while the Yomiuri Shimbun went further and reported the company plans to cut 20,000 jobs as part of the plan.
Photograph: Toshiba president and CEO Tadashi Okamura disclosing details of the company's restructuring at a news conference.