Japanese Manufacturers’ Main Businesses Returning to Black

October 10, 2009 – Osaka, Japan,

Nikkei, Japan’s leading newspaper specialized in economy and politics, reported today that main businesses of Japanese manufacture giants especially high-tech companies that once fell in the red have been going back to black. This is because of Japanese manufactures’ efforts in cost reduction, together with digital consumer electronics and automobile sales hitting the bottom attributing to demand increase of emerging markets and positive effect of government policy such as eco-point system (incentive for consumers purchasing eco-friendly consumer electronics and automobiles). Price hovering at appropriate level due to supply volume control is also a contributor of the recovery. Continuous improvement in operational income by sector would be the overall performance support for such companies in the process of recovery, although there are some uncertainty factors such as high yen.

Market recovery is conspicuous in semi-conductors, HDD and precision component. Toshiba’s flash memories used in mobile audio music players and PC recording media have returned to black for fiscal quarter of July-September instead of original expectation of October-December. Toshiba had been cutting production by 30% January-June this year. And decrease in price stopped and then demand started to recover. Hitachi’s HDD business has also been recovering; its operation income was minus 9 billion yen for April-September but is expected to return to black for October-December.

Positive effects of emerging marketing demand and government policy have led to digital consumer electronics sales hitting the bottom. Sharp’s LCD panel business was in the red by 14.7 billion yen April-June but is expected to go back to black by 16 billion yen for fiscal year ending March 2010. With incentive/tax reduction for eco (ecological & economical) cars, sales related to EV car have been good. Koito’s Japan domestic business of light supplied for Toyota’s Prius cars has been drastically improving. Its operating income was minus 1.2 billion yen for April-June but seems to have returned to black by 5+ billion for July-September.

Cost reduction is also a contribution factor for recovery. Hoya transferred its digital camera production to overseas, and together with good new product sales its business for September seems to have returned to black. Digital camera businesses of Fuji Film Holdings and Olympus are expected to return to black as well. Energy plant business of IHI was in the red by 6.2 billion for fiscal year ending March 2009 but is expected to land on 11 billion yen in black for fiscal year ending March 2010, attributing to clearing out unprofitable overseas businesses plus drop in purchasing cost.

The worldwide economic crisis and recession started autumn last year had hit directly revenues of companies, resulting in total of approximately 3.6 trillion yen in red for total of all Japanese manufacturers for fiscal year ending March 2009. Consumer electronics, automobile and component businesses were the hardest hit, with an example of Toshiba’s semiconductor business that went in the red by 280 billion yen. And then amount of red decreased to 730 billion yen for total manufacturers for April-June, which is 1/8 of January-March. Therefore many experts assume that it has hit the bottom and if recovery trend continues it is possible that the complete recovery scenario for fiscal year ending March 2010 becomes a reality.

Some possible risks for such a recovery scenario include high yen for many Japanese manufacturers whose business relies heavily on export, and uncertain business trend for January-March 2010. Machine tool and semiconductor manufacturing equipment sectors relying on increase in production and investment are quite possible to remain in the red because few companies still refrain from increasing equipment investment with the assumption of demand recovery.

The author strongly believes that performance (operational income) recovery of Japanese manufacturers has an impact on feasibility of Japanese government’s new policy and upcoming action plans as well as on overall economic recovery. Government’s revenue (corporate tax) fluctuates by the degree of recovery in their performance, and in fact this is a big topic in recent budgeting of the government for 2010. It is also the requirement for labour market recovery and stable earnings for citizens, meaning it has big impact on consumer spending. Of course, it also greatly influence investment etc.