SOX- Related can be good for sector-read in conjunction with previous post.
***"Korean makers are not able to cut microchip prices as the won's decline is pressuring earnings," Aiba said.***
****Korean microchip makers are said to be halting production of 16M DRAMS," Fujimoto said.****
FOCUS: Japan electricals yr to March 1999 earnings to recover on chips
AFX, Thursday, February 05, 1998 at 21:28
---- by Yoshio Takahashi ----
TOKYO (AFX-ASIA) - The major electricals should see an improvement in
their year to March 1999 earnings, after most have downgraded their current
year results forecasts, amid increasing optimism of a pickup in chip prices,
analysts said.
A further boost for PC demand could come from the launch of Windows 98
software, although margins appear locked into decline.
Toshiba Corp, Mitsubishi Electric Corp and NEC Corp have all recently
revised downwards their forecasts for year to March earnings, mostly blaming
the downturn in the microchip market.
Hitachi Ltd and Fujitsu Ltd are expected to follow suit.
Now, a pickup in demand for microchips in the year to March 1999 is seen
giving earnings a quick fillip, helping offset weakness in other areas such
as power generation systems and consumer electricals.
Daiwa Research Institute analyst Mami Endo said "the view has emerged
that microchip prices will rally back on the likely fall in output by South
Korean makers as their capital spending will fall due to the won's decline."
Okasan Securities analyst Kouchi Fujimoto also said the decline in the
won is likely to help microchip prices rally.
"Basically, oversupply in the microchip market is not likely to change
significantly but memory chip prices may rally back, to some extent, as
Korean microchip makers are said to be halting production of 16M DRAMS,"
Fujimoto said.
"NEC, which is expected to post a net profit in the current year, is
likely to remain the strongest maker."
Tokyo Securities Research Institute analyst Shigeru Aiba sees microchip
prices moving sideways in the year to March 1999 but developments among the
South Korean makers and the shift to 64M DRAM output hold the key to the
market.
"Korean makers are not able to cut microchip prices as the won's decline
is pressuring earnings," Aiba said.
"It may be too much to say 64M DRAM will become the mainstream product,
but at least 30 pct of total microchip output will be 64M DRAM."
One concern, Aiba said, is that Micron Technology may dump 16M DRAM chips
as its earnings growth from 16M DRAM chips has turned flat.
Even with flat prices, Aiba said Japan's microchip makers should be able
to raise earnings of their microchip divisions in the year to March 1999 on
the back of their technological advantages.
"NEC will continue to raise earnings of its microchip business. It is
well ahead of other microchip makers in the field of 64M DRAM chips with 100
megahertz capacity," Aiba said.
"According to NEC's microchip division, it expects demand for PCs which
need 64M DRAM 100 MHz chips to rise to 60 pct of the total (excluding the low
end) ... in the second half to March (1999), compared with 30 pct in the
first half to September.
"Although this estimate seems quite optimistic, demand for 64M DRAM chips
operating at 100 MHz is likely to rise."
Additionally, Toshiba's strength in shrinking microchip size could well
underpin a revival of its microchip division later in the year, analysts said.
"Some analysts recommend buying Toshiba on the company's chip-shrinking
technology," Tokyo Research's Aiba said.
"Toshiba will introduce 0.25 micron technology for making 64M DRAMs,
while 0.28 micron is the current standard, but only from the second half to
March (1999). That means Toshiba's microchip division will be under pressure
in the first half to September."
Two factors are at work in the the PC sector -- the impact of the launch
of Windows 98 in helping boost demand and the ongoing impact of falling
margins and the trend towards low-priced, basic computers.
"Although domestic demand for PCs is still weak, worldwide PC demand is
expected to post double-digit growth, due in part to the launch of Windows 98,
" Kokusai analyst Akihiro Tsunoda said.
Others are not so optimistic.
"Sales of PCs are likely to continue to fall, not only in Japan but also
in Asia overall, while sales of low-priced PCs are likely to expand to Japan
and Europe this year, this not being limited only to the U.S.," Endo of Daiwa
said.
Low-priced PCs cut directly into demand for electronic parts, he said.
"As many parts are installed in existing PCs, earnings of microchip
divisions will remain pressured, at least in the September half," Endo said,
adding: "I think conditions surrounding the PC market will move towards
recovery from the year to March 2000."
For NEC, with the single biggest exposure to the PC sector and an
estimated 50 pct of the domestic market, the trends are vital. It also has a
big exposure to the telecom sector.
"Sales of its NX laptop-type PC failed to rise strongly last year and the
telecom division is also not likely to boost revenues as growth in the number
of subscribers for mobile phones and data transmission services is slowing,"
Daiwa's Endo said.
"Revenue of these divisions will not fall sharply but it will not rise
sharply, either."
Okasan's Fujimoto said that "NEC cannot be optimistic for its computer
division but earnings of the division will improve from the second half to
March.
"Its PC shipments were too bad this year as demand remained stagnant but
NEC changed its policy to make 'PC-98' type units compatible with IBM PCs and
that will be the right decision for mid-term earnings prospects."
For Toshiba, analysts said, its move to cut PC inventories will end this
year and this should help it raise net profits in the year to March 1999, but
only modestly, as net profits of the PC division are not so high.
Other analysts pointed to ongoing margin pressures on Toshiba's laptop
computers, which will make it difficult for it to raise earnings near term.
"Although Toshiba raised market share in the laptop sector, growth in
laptop PC sales will slow as demand is not expected to expand further in the
year to March 1999," Tokyo Research's Aiba said.
"Toshiba's earnings in the six months to September will remain under
pressure but are expected to rise from the second half. So, earnings through
the year (to March, 1999) will rise slightly to moderately."
Mitsubishi Electric also said it is considering giving Texas Instruments
Inc access to its technology for producing 64M DRAMs along with technology
for producing next generation DRAM chips.
Mitsubishi Electric said the move is expected to improve its licence fee
income.
"With these moves, we aim to take the microchip division into profit in
the year to March 2000," the official said. |
