Hitachi Q2 profit tumbles, outlook slashed

TOKYO (Reuters) - Japan's Hitachi Ltd posted a 48 percent fall in quarterly profit on Monday, hurt by its loss-making hard-disk-drive operations, and it cut its full-year forecast more than expected.

Hitachi's hard disk drive unit, bought from International Business Machines Corp in 2002 for US$2.05 billion, has been in the red in recent years due to low production yields and competition from the likes of US-based Seagate Technology.

Apple Computer's shift to a NAND flash-based iPod nano from the hard-disk-based iPod mini was another blow to Hitachi, which supplied matchbook-sized 1-inch disk drives for the iPod mini.

Hitachi, Japan's largest electronics conglomerate, cut its group net profit forecast for the year to March 2006 by nearly two-thirds to 20 billion yen (US$170 million).

The new target is down from a 51.5 billion yen profit last year and sharply below the consensus forecast of 45.22 billion yen in a poll of 16 analysts by Reuters Estimates.

"In the current market, high techs are not exactly the target of investors' buying interest," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management. "Under these circumstances, it wouldn't help at all to post disappointing earnings."

Based on their latest earnings, only Matsushita Electric Industrial Co Ltd, the maker of Panasonic brand products, and possibly Sharp Corp can be categorised as winners in Japan's electronics sector, Akino said.


Flat panel woes

Hitachi's results were also dented by struggling plasma and liquid crystal display operations, which were hit by steep price declines.

Hitachi increased its exposure to highly competitive flat-panel businesses earlier this year by boosting its stake in a plasma display venture with Fujitsu Ltd.

In July-September, Hitachi's group net profit came to 13.1 billion yen, down from a profit of 25.1 billion yen a year earlier. Sales rose 4 percent to 2.36 trillion yen.

The sprawling electronics maker, whose products range from nuclear power systems to mobile phones, now expects its hard-disk-drive unit to post an operating loss of 36 billion yen in the current business year to March, compared with its initial outlook in April for a 30 billion yen loss.

"Delays in improvement of production yields for server-use hard disk drives as well as for disks and disk drive heads came as a drag," senior vice president Takashi Miyoshi said. "The business environment is very severe but we aim to turn the unit profitable next business year," he told a news conference.

Higher profits at major subsidiaries such as Hitachi Construction Machinery Co Ltd, which benefited from growing demand for heavy machinery used for construction, failed to offset sluggish hard-disk-drive and flat-panel operations.

In contrast, Toshiba Corp, Japan's second-largest electronics conglomerate after Hitachi, posted a 46 percent rise in quarterly profit on Friday, boosted by booming flash memory chip demand.

Additional reporting by Yukari Iwatani Kane.

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