Sumitomo Electric Expects Profit to Rise 50% on Cars, IPad

Sumitomo Electric Industries Ltd. (5802) expects operating profit to rise at least 50 percent next fiscal year as a production rebound by Toyota Motor Corp. (7203) and sales of Apple Inc. (AAPL)’s iPad drive demand for its wiring products.

“The bullish targets by Japanese carmakers will have a huge impact,” President Masayoshi Matsumoto said this week in an interview at the company’s Osaka headquarters. The profit may reach 150 billion yen ($1.8 billion) in the year starting April, he said, compared with a median estimate of 118 billion yen by 16 analysts surveyed by Bloomberg.

Increased output by Toyota, which expects sales of its Toyota and Lexus models to jump 21 percent this year, and other Japanese carmakers is expected to boost Sumitomo’s revenue from auto parts, a segment that accounts for 69 percent of operating profit. The release this week of the newest iPad by Apple, which included Sumitomo in its most recent list of suppliers, may also increase sales, Matsumoto, 67, said.

“My understanding is most of our orders from Apple are for the new iPad model,” he said.

The device, an update of the company’s two-year-old tablet computer, will be priced starting at $499 and include a chip that enables better graphics, Apple said last week. The U.S. company may sell 60 million iPads in all of 2012, about 50 percent more than last year, according to ISI Group in San Francisco.

‘No Guarantee’

“There’s no guarantee such demand for cars will materialize, casting doubt on the target,” Yasushi Mizoue, an analyst at TIW Inc. who has a neutral rating on Sumitomo, said today by telephone. Mizoue said Sumitomo received more orders for iPad components after a competitor lost some production capacity because of flooding last year in Thailand.

“When that supplier recovers, there should be fierce competition again,” he said, declining to identify the competitor.

Sumitomo’s operating profit, or sales minus the cost of goods sold and administrative expenses, in the year ending this month may miss its forecast of 100 billion yen, a target unchanged since May.

“We are now in a very difficult position to achieve the goal,” he said, citing flooding that damaged supply chains in Thailand and the strength of the yen, which last year gained more than 5 percent against the U.S. dollar. “The figure may be lower than 90 billion yen.”

Quake Rebuilding

Revenue, forecast to be little changed at 2 trillion yen this year, is expected to surge to 2.5 trillion yen next fiscal year, buoyed by both sales to automakers and demand for copper wiring from construction companies in Japan’s northeast as the region rebuilds after last year’s earthquake and tsunami, Matsumoto said.

“If you exclude the negative effects of the stronger yen, this shows we are in line to achieve the objectives in our mid- term plan started in 2007,” he said.

Toyota said in February it expects global sales of Toyota and Lexus brand cars to increase to a record 8.58 million units this year, while the addition of minicars sold by Daihatsu Motor Co. and trucks made by Hino Motors Ltd. (7205), both subsidiaries of Japan’s biggest carmaker, will boost the number to 9.58 million. The Japan Automobile Manufacturers Association said in January domestic car sales may increase 19 percent to 5.02 million units this year.

New Business Search

Sumitomo Electric, which started in 1897 as a copper wire manufacturing unit of the Osaka-centered Sumitomo conglomerate, is now considering new businesses related to the environment, health care and energy as it tries to cut dependence on auto parts. The company failed to meet a target, included in its mid- term business plan, of reducing the sector’s proportion of operating profit to 30 percent from 50 percent because the auto industry continues to be too important, Matsumoto said.

“After a century, there is still no business that compares with cars in terms of scale,” said Matsumoto, who like Toyota President Akio Toyoda writes his own blog. “We will continue to try to reduce our reliance but it will be difficult to achieve the target.”

Sumitomo Electric rose 1.5 percent to 1,152 yen at the 3 p.m. close on the Tokyo Stock Exchange. The stock has risen 37 percent this year, outperforming the 27 percent increase of its peers in the 24-member Topix Nonferrous Metals Index. (TPNMET)

To contact the reporter on this story: Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Drew Gibson in Osaka at dgibson2@bloomberg.net.

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