Flash price decline ruins Toshiba's year

Toshiba has become the fourth major Japanese electronics company in the last two weeks to slash its full-year sales and operating income forecasts because of recent sharp falls in the price of chips and digital electronics products.

The company has cut its sales forecast for the year to March 31 by YEN 10 billion ($US96 million), to YEN 5.86 trillion, and its operating income forecast by YEN 30 billion to YEN 160 billion, Toshiba said. The forecasts were issued in October.

Toshiba also lowered its net income estimate by YEN 5 billion to YEN 45 billion, as it announced its financial results for its fiscal third quarter, which ended December 31.

The declining price of NAND-type flash memory is the main reason for Toshiba's pessimism, company spokesperson, Makoto Yasuda, said.

Inventory adjustment was another reason: Toshiba saw sales fall below expectations in the fourth quarter as customers reduced their stocks of digital consumer products and chips, he said.

NAND flash is commonly found in removable memory cards used in products such as digital still cameras, and stores data even when the electricity supply is switched off.

Toshiba is the world's second biggest NAND flash memory supplier, with a market share of between 25 per cent and 35 per cent. Prices for 2G-bit parts fell from about $US40 at the beginning of 2004 to $US20 at the end of that year, and will fall to about $US15 by March, according to program director for semiconductor research at IDC, Kim Soo-Kyoum.

"We see a 24 to 25 per cent price decline for the January to March quarter," he said.

The reason for the expected price plunge is that Toshiba and Samsung Electronics, which has almost 70 per cent market share, were producing too many chips, while people were buying fewer digital consumer products after the year-end shopping spree, Kim said.

Toshiba's break-even price for 2G-bit parts is about $US12. The company is continually improving its production processes, so this figure could change. Prices could reach $US8 for the parts at the end of 2005, the analyst said.

Toshiba's financial revisions come despite improved figures for the first nine months and the third quarter of its fiscal year, when the company turned losses into profits and sold more compared to the same periods during the prior year.

Sales during the nine months to December 31 were up 6 per cent from the same period a year earlier. Profits were YEN 10 billion, compared to a loss of YEN 41 billion in the nine months to December 31, 2003.

The biggest rise came in the company's electronic products group, which includes mobile phones, optical disk drives and PCs, according to Yasuda.

Toshiba's sales for the October-December period rose 3 per cent year-on-year, and it made a YEN 1.6 billion profit, compared to a loss of YEN 9.2 billion during the same quarter a year earlier.

"There was a big improvement from the PC division business compared to last year, but NAND flash prices are our biggest concern," Yasuda said.

Comparing the revised forecasts from Toshiba and its rivals Fujitsu, NEC and Sony, the companies expect their combined sales for the year to be about YEN 160 billion less than they had estimated last October, and they expect combined operating income for the year to be about YEN 125 billion lower than previously forecast.

The companies cited rapid drops in the prices of various chips, flat-panel displays, DVD recorders and overproduction of products which, in turn, lowered demand for some chips, for the revisions.

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Paul Kallender

IDG News Service
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