Presentations & Events


- ended March 2004 (For 165th Fiscal Period)

Presentation for FY2003 Q3 Results

For First 9 months and 3rd Quarter ended December, 2003   - January 29, 2004

Outline of the presentation

  • Figures are on a consolidated basis.
  • In the third quarter, net sales were 1,324.7-billion yen (+1%, +10.3-billion YoY), operating income was 14.0-billion yen (+11.6), pre-tax income was 9.4-billion yen (+26.2) and we saw a net loss of 9.2-billion yen (-2.3). Sales increased in Electronic Devices, which significantly improved profitability. Social Infrastructure enhanced profit. Social Infrastructure narrowed its loss. Digital Products produced a loss. The overseas sales ratio was 43% (-1%).
  • In Digital Products, net sales were 534.5-billion yen (-12.3) and the operating loss was 7.8-billion yen (-16.6). Sales of PCs, overseas sales of mobile phones and sales of projection TVs in the USA all declined. PC unit sales increased in all markets, but price erosion and a changed product mix had a major impact. The operating loss in PCs and peripherals in the third quarter was 5.6-billion yen. Material costs remain very high, but restructuring started to show signs of improvement.
  • In Electronic Devices, net sales were 337.9-billion yen (+19.1) and operating income was 34.4-billion yen (+25.1). The CRT business moved to a JV (23.0-billion yen). In semiconductors, NAND flash memories and MCPs for mobile phones saw very good sales. In LCDs, a focus on small- and medium-sized displays (for mobile phones, mobile PCs, etc.) produced increased sales; the business moved into the black.
  • In Social Infrastructure, net sales were 314.4-billion yen (-26.9) and the operating loss was 18.1-billion yen, a 2.4-billion yen improvement YoY. Overseas sales of thermal power plants decreased, and the industrial electric and automation systems moved into a JV (13.3-billion yen). Price erosion cut into sales and profitability in the IT solutions business. Medical systems and the elevator business enhanced profitability.
  • In Home Appliances, net sales were 154.1-billion yen (-1.1) and the operating loss was 0.3-billion yen (-1.1). Sales slightly decreased YoY. Price erosion at home had a major impact in profitability.
  • In Others, net sales were 105.0-billion yen (-5.9) and operating income was 5.8-billion yen (+1.8). Shibaura Mechatronics was removed from consolidated results. It is now an affiliate, accounted for by the equity method.
  • The forecast for FY2003 remains unchanged from that of October 2003. The sales forecast is 5,650.0-billion yen (-5.8), operating income is 140.0-billion yen (+24.5), pre-tax income is 90.0-billion yen (+36.9), and net income is 25.0-billion yen (+6.5). In Electronic Devices, sales of semiconductors, especially memories, remain very healthy, and LCDs moved into the black in the third quarter. We expect to surpass the previous forecast in these businesses (OP: 75.0-billion yen). In Digital Products, results in the PC business showed signs of improvement, but harsh business conditions continue, especially high material costs. In Social Infrastructure, the projection for power-related businesses are achievable, but the IT solutions business environment is very severe. In Home Appliances, price erosion continues.
  • End-of-term dividend: Not decided yet.

Q & A Session

Q1. How is the current situation in the semiconductor business and what are your capacity utilization rates?
Discrete sales were very healthy thanks to strong demand in mobile phone, PC markets and demand related to the Chinese New Year. System LSI sales were affected by weak demand in the Asian audio market and for PHS in mainland China, but sales for digital consumer products and TVs in China were very strong. The capacity utilization rate of each factory is satisfactorily high. Production of discrete devices in Himeji, memories in Yokkaichi and advanced system LSI in Oita are all running at 100%. Some system LSIs have been outsourced.
Q2. Why is your production volume of NAND flash memories lower than in the plan announced in October?
We have not lowered our production volume plan. It looks as is we did because we changed our product mix to make more lower density devices to meet market demand.
Q3. Why did you lower your sales and earnings projection for PCs?
We revised the PC sales forecast to 690-billion yen and operating loss to 26.5-billion yen. The main reason for this is that the reduction in LCD procurement costs was about 5-billion yen lower than planned. We also revised our sales volume projection by 100K units, as we minimized sales of low-profitability models. The average sales price was down by 10K yen in the last 6 months. But this was partly because of the product mix change.
Q4. Have you seen any effect from your PC restructuring?
We have cut our worldwide headcount by 500, and taken necessary actions to improve productivity. We also separated the PC business into an independent in-house company in January, in order to improve flexibility and responsiveness. The situation has improved from last summer, but we are still considering further drastic reforms.
Q5. What is the current situation of the TV business?
Sales of 26" flat panel TVs are very good, as this is a unique size and there is no great competition. But, very honestly speaking, the situation is still tough. Toshiba is a latecomer in the flat panel TV market. In North America, we are launching DLE-type projection TVs. We will do all we can to come back to the black.
Q6. What is the impact of Shibaura Mechatronics' shift from a consolidated subsidiary to a non-consolidated affiliate?
Shibaura's sales are about 30-billion yen every half year. We can almost offset this with other businesses. There is almost no impact on profitability. But it has huge assets, and its elimination from the consolidation accelerates our asset reduction.
Q7. How do TV and semiconductor profitability compare with your October projection?
TV profitability worsened slightly. We see semiconductor operating income increasing to 110-billion yen from we projected 91-billion yen in October.
Q8. Your operating income projection is unchanged. What is the situation in each segment?
In terms of profit, Digital Products, Home Appliances, and Social Infrastructure's IT solutions business are all in a tough situation. To our regret, the market we focus on in the solutions business has been shrinking.
Q9. What is the main reason for the increased profitability in semiconductors, and what is the profitability of the LCD business?
In semiconductors, both NAND and discrete devices contribute a lot to profitability. The system LSI business is almost at break even. We got LCDs back into the black in the third quarter, but the business is still in the red for FY2003 as a whole.
Q10. Do you still believe you can achieve the targeted operating income in Social Infrastructure in the 4th quarter?
Our 4th quarter sales in this area are always very big, for seasonal reasons. We are quite sure that we can hit the target this year as well.
Q11. When will the 16-billion yen non-operating loss related to the dissolution of A & T Battery be incurred?
It is not decided yet, but we assume about 2/3 will be incurred by the end of FY2003 and the rest in FY2004. A non-operating loss of about 10-billion yen is already contained in our original budget.
Q12. What is your capital expenditure plan for semiconductors in FY2003 and FY2004? Do you have any plan to raise equity finance to secure them?
Our plan for FY2003 is 130-billion yen, but we have not yet decided capex for FY2004. We can get the necessary funds from cash flow and have no plan for equity finance.
Q13. What is the impact on consolidated earnings of Shibaura Mechatronics and other affiliated companies accounted by the equity method?
Shibaura's impact is very small. But some new companies' slow ramp up brought our results into the red this year.
Q14. How do you see the semiconductor demand in the 4th quarter? What do you think about the profitability of NAND flash memories?
The market price of NAND has been stable since the beginning of last autumn, and we believe it will remain so for the time being. Demand for discrete devices will ease, as the 3th quarter sales were too good. In system LSIs, healthy sales in digital consumer, and a recovery of the Asian audio markets should offset low sales in China's PHS market. In memories, NAND sales are very strong, thanks to the increased production of digital still cameras and penetration in the USB memories and MP3 audio players.
Q15. Your competition says the NAND market will grow by +180% in 2004. How much can you increase your NAND production in a short term?
Toshiba expects the market will grow by +100%-plus. Total memory production capacity at Yokkaichi Operations will be increased from 85K a month to 90K wafers a month by March, and to 100K wafers a month by the end of FY2005. Also, we will increase wafer production at Oita by 3.25K wafers a month the 2nd half of FY2004, for memory production.
Q16. Why did your tax payment increase so drastically?
Because there was a big gap between the book prices of Shibaura Mechatronics' and Toshiba Tungaloy's stocks on a consolidated basis and a non-consolidated basis.
Q17. You expect the operating loss in the PC & peripheral business in the 4th quarter will shrink to 4-billion yen. How do you see procurement cost reduction?
We negotiate with component and material suppliers every month. Realistically, estimated prices are taken into consideration in the earnings plan.
Q18. What achievement have you made in recent PC activities?
We have finally secured supply of LCDs. We do not think we lose opportunities because of LCD supply.
Q19. You have lowered your projection for PC & peripheral's operating income by 5.5-billion yen. How is the operating income of the peripheral business itself?
In peripherals, we produce 1.5 million 2.5- and 1.8-inch HDD a month, 90% of them 2.5-inch ones. Our 1.8-inch HDD are finding growing applications: from mobile audio players to car navigation and mobile PCs. Sales and profitability are very healthy.
Q20. How big is the annual operating loss of A & T Battery?
7 to 8-billion yen. The operation will continue until about September, but there will be no more negative impact on consolidated P & L in the 2nd half of FY2004.
Q21. When will you return the substitute portion of the public pension benefits to the government?
The government has already approved the return. We will return the whole amount by the end of March. This will give us a slight profit in FY2003, and add about100-billion yen to our equity in the balance sheet.

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