Hi Elmatador, we were at some time mumbling something about maybe all the market noise is masking a transition from the Silicon Glory to some next, but as yet unknown, abracadabra. We should keep watching for signs that this dire possibility may in fact be the awful case, so that we do not end up buying into past winners, only to be struck down in our prime by the dying spasm of a 'had-been' industry.
Chugs, Jay
economist.com
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Japanese electronics companies
Lay-offs with no sign of revival
Aug 30th 2001 | TOKYO
From The Economist print edition
Headline-hitting job cuts will not be enough to turn round Japan’s ailing electronics giants
AP
TOSHIBA says that 19,000 jobs will go. Fujitsu is jettisoning 16,000 workers. NEC is adding 4,000 jobs to the 15,000 it already plans to shed. Kyocera is cutting 10,000 and Oki Electric 2,200. And Hitachi, which has yet to break the bad news, may top them all with cuts expected to total 20,000. Were there any doubts about their health, there can surely be none now: Japan’s lumbering electronics conglomerates are in pain.
Fujitsu thought it would make profits of ¥50 billion ($420m) this year. Now it says it will make a ¥220 billion loss, the worst in its history. Toshiba is bracing itself for a loss of ¥115 billion. Pleading turmoil in the chip industry, Mitsubishi Electric, another big firm that has been upended by the global technology recession, has abandoned forecasting this year’s profits altogether.
Now, of course, is the time to persuade shareholders that a fix is in the works. And along with the job cuts, investors have been offered plenty of other tinkering to cheer them up. Fujitsu, for example, is shrinking its computer hard-disk-drive business, transferring a chip plant to a joint venture with Advanced Micro Devices, an American firm, and considering spinning off several other businesses, such as printers and flat-panel displays. NEC plans to close some chip-making plants in Japan and Britain. Toshiba may merge its memory-chip business with Infineon, a German company, or sell it to Samsung Electronics, a South Korean firm.
Yet shareholders remain unmoved. Toshiba’s restructuring plans, unfurled on August 27th, got a half-hearted cheer from the stockmarket. But Fujitsu’s shares have hardly budged since it unwrapped its plans on August 20th. NEC’s shares, meanwhile, have actually fallen since its latest effort, on July 31st, to convince investors that it could heal itself.
Although Japan’s electronics conglomerates make everything from washing machines to bullet trains and toasters, it is their chip businesses that drive profitability. Recently, however, profits have turned into heavy losses as they have been squeezed from two sides. American firms, such as Intel, have better technology. And other Asian producers, notably in South Korea and Taiwan, can make commodity chips more cheaply.
Some Japanese chip makers, including Fujitsu and Mitsubishi Electric, have been abandoning commodity production wherever possible. Toshiba, Hitachi and NEC have, however, dithered badly, neither making the investments to produce on the right scale to compete on price with the South Koreans and Taiwanese nor getting out of the business altogether.
The latest recession, in which the prices of some types of commodity chip have fallen by nearly 90%, has at last prodded some of the Japanese laggards into action. NEC is closing a British plant which makes DRAM commodity chips, and the company is also rumoured to want to sell its stake in a DRAM joint venture to its partner, Hitachi. Selling Toshiba’s memory-chip business, says Ikuo Matsuhashi of Goldman Sachs, would add ¥100 billion a year to the company’s profits.
The future is confused
The Japanese have a better notion of what chips they do not want to make than of where to turn for future profits. Fujitsu and Mitsubishi have invested in “flash” memory-chip production. Because flash memory is used in mobile phones, cameras and other gadgets, it would protect them, they argued, from a downturn in the PC business. So much for the theory. Thanks to a slump in the mobile-phone business, flash memory prices are also falling fast; one of Fujitsu’s flash memory plants is running at 20-30% of capacity.
Neither Toshiba nor NEC is giving away much about its future sources of growth. “The Japanese are offloading before they have their replacement products in place,” says Roger Mathus, the Tokyo representative of America’s Semiconductor Industry Association. The same point applies to the job cuts. Deep, immediate cuts might persuade investors that the Japanese can soon return to growth. But this is not what they are promising. NEC has given itself three years to hit its targets, as has Toshiba. Hitachi is rumoured to be planning something similarly distant. At this rate, restructuring looks more like managed decline.
Only Fujitsu is promising to hit its job-cut target by the end of the year. But this tells another story. Unlike Toshiba, which is sensibly making its deepest cuts in high-cost Japan, Fujitsu will make 11,400 of its 16,400 cuts overseas, dumping the foreigners, in time-honoured Japanese fashion, to protect more expensive jobs at home. Either way, none of the big electronics companies plans compulsory redundancies in Japan. Despite the savage operating environment, firing long-serving workers is still taboo, a principle around which all restructuring plans apparently have to fit.
The larger strategic questions, meanwhile, go almost entirely unanswered. As conglomerates, the Japanese are corporate relics, lacking the scale or focus to compete effectively in any of the many industries that they straddle. To create an American Hitachi, for instance, you would need to merge a bit each of Intel, Lucent Technologies, Microsoft, IBM, General Electric and many others besides. All told, the group contains a staggering 1,069 companies.
Outlining his firm’s restructuring efforts, Naoyuki Akikusa, Fujitsu’s president, rejected the notion that Fujitsu should break up its 517 companies, saying instead that he would pursue a “Japanese new-business model”. This week, Tadashi Okamura, Toshiba’s president, waffled hopefully about “synergy effects” among his 323 group companies. But even Mr Okamura’s management consultants have had a hard time figuring out exactly what Toshiba is in business to do. The latest thinking divides the company into three incomprehensibly vague units that between them cover just about all possibilities: industry and society, the individual, and components.
Between them, Toshiba, Hitachi, Mitsubishi Electric, Fujitsu and NEC employ almost 1m people. Hundreds of thousands more supply or distribute to and from them. As in the former Soviet Union, whole cities depend on them for their livelihood. In a week in which Japan’s unemployment rate hit 5% for the first time since the second world war, the massive cuts in their payrolls are provoking panic. What really should worry investors, however, is not how much they are doing, but how much they are not doing.
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