"We have had plans to lessen our dependence on DRAMs, "
Chip toll creates Hitachi 'emergency'
Appliance, currency woes contribute to profit plunge; board decides to freeze salaries, cut midyear bonuses
BY KAORU MORISHITA
Staff writer
Hit hard by the plunge in prices for memory chips, stagnant sales of home appliances and Asia's economic crisis, Hitachi Ltd. cut its earnings forecast for fiscal 1997 to historically low levels.
In a bid to trim losses from the once-lucrative dynamic random-access memory (DRAM) business, the company also announced it will withdraw from a DRAM-production joint venture with Texas Instruments Inc. of the U.S. at the end of March.
On Feb. 10, Hitachi said consolidated pretax profit for the year through March will total only 150 billion yen ($1.2 billion) instead of the 265 billion yen forecast in October. Net profit is expected to total only 20 billion yen, down from the 89 billion yen predicted earlier.
Consolidated sales are to reach 8.4 trillion yen instead of the 8.5 trillion yen anticipated in October.
"Hardest time"
"We see this situation as an emergency, the hardest time since Hitachi started" in 1920, said Yoshiki Yagi, senior executive managing director. He said the unconsolidated pretax profit hit its lowest level since fiscal 1966, but that profitability fell to the lowest-ever level because revenue has expanded more than tenfold since then.
Out of the 115 billion yen in lost revenue, 65 billion yen came from the semiconductor business, 20 billion yen from home appliances, 10 billion yen from other products and 20 billion yen from increased borrowing as a result of the currency plunge in Southeast Asian countries.
"The revision was worse than expected," said Masaya Yamasaki, electronics- sector analyst at Nomura Securities Co. "Because the results for the semiconductor business were poorer than we thought, more restructuring in the semiconductor business will come soon." The day before the revision was announced, Hitachi said it would withdraw from Twinstar Semiconductor Inc., a DRAM maker based in Richardson, Texas, by the end of March. Twinstar started operations in 1996 as a joint venture of Hitachi, Texas Instruments and several financial institutions. The semiconductor maker will continue as a 100% subsidiary of Texas Instruments.
"This difficult decision was driven by a number of factors impacting the DRAM business, such as the price erosion and excessive supply of DRAMs in the market," said Tadashi Ishibashi, Hitachi's executive managing director.
Withdrawal from the project will cost Hitachi 30-35 billion yen. Yagi said Hitachi will cover the loss incurred by withdrawing from Twinstar by selling shares of other companies that Hitachi holds.
Reflecting board members' view that the company is in an emergency, they met Feb. 10 and decided to freeze salaries and cut this June's bonuses.
Hitachi will also reduce its consolidated capital investment in the semiconductor business in fiscal 1997 by 20 billion yen, to 120 billion yen. It plans to reduce investment to around 100 billion yen in fiscal 1998.
"It is true that our belated restructuring of our DRAM business led to this result, " Yagi said. "We have had plans to lessen our dependence on DRAMs, but we could not increase the number of engineers for non-DRAM semiconductors overnight." He said the first half of fiscal 1998 will be a tough time for Hitachi because it 75% of the group's revenue depends on the Japanese market, which is expected to remain stagnant.
"We will see a recovery in earnings in the second half after more restructuring, stabilization in the semiconductor market and profits from some new products," Yagi said.
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