Japan’s IC Makers Report Losses, Spending Cuts

SAN JOSE, Calif. — After sizzling growth last year, Japan’s leading semiconductor makers are slipping back into the abyss amid mounting losses and capital spending cuts in fiscal 2005.

And the future prospects look gloomy for the likes of Elpida, NEC Electronics, Sanyo, and Sony — all of which have separately posted losses in recent times. One of the few exceptions to the rule is Toshiba Corp., which is seeing enormous demand for flash memories.

David Motozo Rubenstein, an analyst with Japaninvest in Tokyo, projects that major Japanese chip makers in total will cut their overall capital spending by 20 percent in fiscal 2005, which ends in March 2006. The collective group includes Elpida, NEC, Sanyo, Sony and Toshiba.

Japan’s semiconductor makers do not reflect the overall trends in the nation’s economy, which is bouncing back from what seemed like an endless recession, Rubenstein said.

As a group, Japan’s chip makers “are underperforming,” he said. “The semiconductor industry doesn’t reflect the economy.”

Like most chip makers, Japan’s IC vendors were hard hit by the past downturn. But Japanese companies recovered and began building a slew of 300-mm plants amid anticipated demand in the global markets.

And now, the news is bleak. Kaoru Tosaka, president and chief executive of NEC Electronics Corp., has stepped down amid mounting losses for the semiconductor and electronics giant, the company said on Wednesday (Oct. 26) (see Oct. 26 story).

"Because of our sales decline, which is sharper than the overall market's, we appear to have no option but to post a loss not only for the first half but for the second," Tosaka said in a report from Reuters. "I sincerely feel responsible for our repeated downward earnings revisions since the second half of last business year."

Declining memory prices and costs associated with starting a wafer fab caused Japanese DRAM maker Elpida Memory Inc. this week to report a net loss of 6.34 billion yen ( $54.9 million) in the first half of its financial year on revenues of 105.5 billion yen ($913.6 million) up 5.3 percent from last year (see Oct. 25 story).

Not all Japanese chip makers are in the tank. Toshiba Corp. is expected to report a higher profit when it announces half-year results this week, thanks to huge demand for NAND-based flash memory chips.

But Toshiba’s capital spending budget will fall 37 percent in fiscal 2005, as compared to the like period a year ago, Rubenstein said. The company’s capital spending is the weakest among Japanese chip makers, he said.

The overall outlook appears to be gloomy in 2006. Worldwide chip demand “is not going to be that strong,” he said. “Utilization rates will deteriorate next year.”

Worldwide capital spending is expected to be flat-to-down 5 percent in 2006, according to the analyst.