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Hitachi scores largest loss in Japanese manufacturing history

NEC optimistic

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Hitachi and NEC have reported their their fiscal 2008 results, and the numbers are not good. Hitachi set a new record for the largest annual loss by a Japanese manufacturing company as NEC struggled. On the up side, though, NEC was optimistic about the coming twelve months.

Hitachi, which is an extremely diversified manufacturer with a dabble here and there in IT, posted sales of 10 trillion yen ($102bn), down 11 per cent, and had a net loss of 787.3 billion yen ($8.03bn). Hitachi pointed the finger at the US for its economic woes, saying the financial crisis, the ensuing turmoil in global financial markets and the decline in spending across most sectors of the economies of the world were the drivers of that huge loss for the year.

Oddly enough, Hitachi's hard disk drive business was one of the bright spots within the conglomerate's Information and Telecommunication Systems group. Hitachi said that the return of the disk business to profitability was one big reason why the operating income for the ITS group rose by 52 per cent to 176.6 billion yet ($1.8bn) even though revenues fell by six per cent to 2.59 trillion yen ($26.5bn).

That said, hardware sales on the IT side - which includes a smattering of servers - fell even as telecom system sales rose. Hitachi's Electronic Devices group, which makes computer displays and semiconductors of various kinds, fell by 11 per cent to 1.15 trillion yen ($11.75bn), operating income for this group fell by 49 per cent to 27.3 billion yen ($279m).

Looking ahead to fiscal 2009, ended next March, Hitachi says that it expects the Chinese economy to "achieve comparatively high growth" thanks to stimulus efforts coming out of Beijing, but that the global economy is not going to see a "full-fledged recovery" until 2010 at the earliest.

As such, Hitachi is planning for an 11 per cent decline in overall sales in fiscal 2009 to 8.9 trillion yen ($93.7bn), and that it will have a net loss on the order of 270 billion yen ($2.84bn). That's not exactly good news, but the losses are not expected to be as bad as Hitachi posted for fiscal 2008.

Over at NEC the numbers were equally challenging. NEC's revenues dropped 8.7 per cent to 4.22 trillion yen ($46.4bn) and the company posted a net loss of 296.6 billion yen ($3bn), compared to a tiny profit of 22.7 billion yen in fiscal 2007.

NEC's IT/Network Solutions group had sales of 2.72 trillion yen, down five per cent and an operating income of 124.9 billion yen, compared to a loss of 35.8 billion yen in fiscal 2007.

Within this group, the IT Services/System Integration division did pretty well, with sales of 824.5 billion yen, down one per cent, while the IT Products division - which sells laptops, PCs, and servers, among other things - posted a decline of 5.4 per cent for the year to 574 billion yen.

Network Systems just broke through one trillion yen in sales, but was down by 7.5 per cent. As previously reported, NEC has been pulling out of the PC business outside of its home Asia/Pacific market.

NEC's Mobile/Personal Solutions group, which makes and sells mobile handsets and PCs of various kinds, posted 810.3 billion yen in sales in fiscal 2008, down 7.2 per cent, with PC sales falling 13.2 per cent to 462.2 billion yen. This group booked an operating loss of 31.1 billion yen, compared to a loss of 7.9 billion yen in fiscal 2007. NEC's Electron Devices unit continued to hemorrhage, with sales down 21.4 per cent to 652.8 billion yen and an operating loss of 79.3 billion yen.

In an effort to cut costs, NEC is working on a partnership with Renesas Technology - itself a partnership between the chip units of Hitachi and Mitsubishi dating from 2003 - that will see the companies work together on 32 nanometer manufacturing capacity. This combination would create the third largest semi manufacturer in the world, behind Intel and Samsung Electronics, and also gives the combination a dominant share of the microcontroller space.

Looking ahead to fiscal 2009, NEC is far more optimistic than Hitachi. NEC said it expects to report 3.73 trillion yen in sales, down 11.5 per cent, but will swing to a tiny 10 billion yen profit. ®

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