Japan Inc. Supply Chain Bleeds Jobs as Strong Yen Batters TV, Chip Profits

Japan Inc. is suffering and the supply chain is bearing the cost.

Sumco Corp. (3463), a supplier to Sony Corp. (6758) and Toshiba Corp. (6502), said yesterday it will cut 1,300 jobs. Auto windshield maker Nippon Sheet Glass Co. (5202), which sells to Mazda Motor Corp. (7261), said it will cut 3,500 jobs. They join NEC Corp. (6701), a Japanese maker of telecom equipment and components, which said last month it would eliminate 10,000 positions.

The yen’s 7 percent surge against the dollar in the past 12 months has widened losses at Panasonic Corp. Sony, Mazda and Sharp Corp. (6953), which plans to halve TV production at its biggest factory to reduce inventory. Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts.

“Once giants like Sony and Sharp fail, the entire supply chain falls into the red,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo. “The yen is killing Japan’s manufacturing base.”

Sumco forecasts a full-year loss of 85 billion yen ($1.1 billion) and asked Sumitomo Metal Industries Ltd. (5405), which owns a 28 percent stake, to buy preferred shares. Sumco will also take a charge of 58.2 billion yen for the restructuring and close two plants in Japan.

Nippon Sheet Glass now expects a loss of 3 billion yen for the year ending March 31, compared with a previous forecast of 14 billion yen in profit, it said in a statement yesterday. The Tokyo-based company said the job cuts will cost about 25 billion yen, with an expected benefit of 20 billion yen annually after reforms take effect.

‘Biggest Catastrophe’

NEC, forecasting its third annual loss in four years, said Jan. 26 it would cut 7,000 jobs in Japan and 3,000 abroad, amid slumping demand for its handsets and wireless gear. The cuts equal about 8.6 percent of the Tokyo-based company’s workforce.

“No Japanese manufacturing company can make profit at the yen’s current level around 75 to the dollar,” Toshihiro Nagahama, chief economist at Dai-Ichi Life Insurance Research Institute, said yesterday by telephone. “This is the biggest catastrophe for Japanese manufacturers since the war.”

Nippon Sheet Glass plunged to the lowest level in almost 35 years, declining 12 percent to 132 yen, after announcing its job cuts yesterday after the market closed. Sumco rose the most in more than three years, surging 17 percent, reversing yesterday’s 15 percent plunge, after announcing job cuts and as its Taipei- based affiliate Formosa Sumco Technology Corp. said some capacity would be moved to factories in Taiwan.

Job Losses

Sharp rose 2.8 percent, the first gain in six days, while Sony surged 8.1 percent and Hitachi (6501) Ltd. climbed 7.5 percent amid expectations the electronics makers’ vows to exit unprofitable businesses would succeed in reviving growth.

Japanese unemployment rose to 4.6 percent in December, compared with the five-year average of 4.4 percent, as job losses were offset by an increase in the number of people leaving the workforce having reached retirement age.

The job cuts announced this earnings season included the heads of both Sony, which lost about 480 billion yen on TVs in the past seven years, and Canon Inc., the world’s biggest camera maker. Canon President Tsuneji Uchida will leave his post effective March 29, while Sony Chief Executive Officer Howard Stringer will be replaced by Kazuo Hirai on April 1.

Sony more than doubled its annual loss forecast yesterday to 220 billion yen, underscoring the challenge for Hirai in reviving Japan’s biggest consumer-electronics exporter.

Sony, Samsung

The company blamed a stronger yen, cuts in production caused by last year’s floods in Thailand and the cost of exiting a display-panel venture with Samsung Electronics Co. for causing its estimated annual loss to widen from the 90 billion yen deficit it forecast in November. The loss in the 12 months ending March will be the fourth in a row, a first since the Tokyo-based company was listed in 1958.

Sony, maker of Bravia TVs, has lost ground to South Korea’s Samsung and LG Electronics Inc., both of which sell TVs profitably. Sony and Japanese television makers Sharp and Panasonic Corp. (6752) have been crippled by the strengthening yen, which prompted Sharp to predict a record $3.8 billion loss for the year ending March 31.

Hitachi, which already plans to close its remaining television plant in Japan by September, said third-quarter profit dropped a more-than-expected 45 percent.

Hitachi, Panasonic

“Our TV business unit is already slimmed down, but we will cut it even more,” Executive Vice President Takashi Miyoshi said yesterday. “Hitachi doesn’t expect a profit in the TV segment next fiscal year, and we can only hope to become profitable in TVs in the future.”

Panasonic, the world’s biggest maker of plasma televisions, widened its annual net loss forecast to a record 780 billion yen today, citing the stronger yen, along with Thai floods and slower global economic growth.

Elpida Memory Inc. (6665) posted a fifth straight quarterly loss and said it expects to reach an agreement for further support from the government and lenders. The largest maker of dynamic random access memory after South Korea’s Samsung and Hynix Semiconductor Inc. needs 92 billion yen to repay bonds and loans by April, according to a filing in June.

“These companies have been under pressure because of profitability, so management are now making the decisions,” said Yoji Takeda, who oversees about $1.1 billion at RBC Investment Management (Asia) Ltd. “When other companies are doing the same, it’s easier to execute. It’s not just a one-off this time.”

To contact the reporters on this story: Shunichi Ozasa in Tokyo at sozasa@bloomberg.net; Kathleen Chu in Tokyo at kchu2@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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