Japanese Tech Stock Weekly Update

The following is excerpted from IRG's weekly stock report:

Internet

• Sony (SNE), Matsushita (MC), Sharp (SHCAY), Toshiba (TOSBF) and Hitachi (HIT), the Japanese consumer-electronics giants, announced entering an agreement to develop a joint standard for Internet-connected TVs. Under the alliance, the group plans to establish a common standard for aspects of Internet TV such as the OS, security, copyright protection and network connectivity. The move is aimed to make it easier for content makers to produce viewing material for televisions that link to the web. Industry observers are saying that the alliance might push rivals overseas either to develop alternatives in competition, or adopt the planned Japanese standard. For the OS, companies have decided to adopt Linux, rather than Microsoft’s (MSFT) Windows system. Beyond that, the specifics of the standard are undecided. The five rivals set up a joint company last month called TV Portal Service Corp. to develop this common standard, with Sony and Matsushita as the lead shareholders, each with 35 percent stake. The others have 10 percent shares.

• Softbank Corp. (SFTBF) said it has sold 7.5 percent of its 26.7 percent holding in financial service unit SBI Holdings Inc. in a deal valued at 50 billion yen (US$437 million). The sale price values the shares at 45,000 yen (US$393.2) each. Japan's largest asymmetric digital subscriber line operator and the third largest mobile phone operator in the country said it will book a special capital gain from the sale of 29 billion yen (US$253.4 million) in the second quarter to September this year. Softbank said it would use the proceeds to repay part of its outstanding debt.

Telecommunications

• Nippon Telegraph and Telephone (NTT) reported an 18.5 percent decline in profit for the first fiscal quarter to 144.7 billion yen (US$1.2 billion) from 177.6 billion yen (US$1.5 billion) the same period the previous year. The company ascribed the drop to the continuing declines in income from its fixed-line business as well from the costs it incurred in promoting its broadband Internet services, and its mobile operations. The company said its quarterly sales went up by 0.9 percent to 2.6 trillion yen (US$22.7 billion). The company said that its mobile carrier unit NTT DoCoMo still dominates the Japanese market, and the service still continues to grow. Its operating profit, however, went down by 21 percent in the latest quarter, despite rising revenue. The company said expenses at NTT DoCoMo were also higher, mostly related to selling new handsets, while service prices have been plunging because of intensifying competition. NTT said it is maintaining its forecast for the full fiscal year ending March 31 in 2007 at 500 billion yen (US$4.3 billion) profit on sales of 10.8 trillion yen (US$94.3 billion). The company has been working on registering more users to its broadband service using optical fiber, which is one of the fastest types of broadband available around the world. NTT said it has been increasing users of a fast 3G data transmission on mobile phones called Foma, which allows people to use handsets to watch video clips and relay more data.

Media, Entertainment and Gaming

• Camelot Software Planning, the studio that has become known for its line of Mario sports software, disclosed that it will take a pause from its alliance with Nintendo to concentrate on a partnership with Eleven-Up Inc. and Yahoo! Japan. The studio revealed it will develop a new golf title for the PC called Golf Daisuki. The game begins beta testing later this month and once complete, will be distributed on the G-Planet service created by Eleven-Up and Yahoo! Japan. Camelot is a small studio of about 30 development staff. The team has not ruled out future development with Nintendo. Camelot said the studio would devote its full resources to G-Planet because it sees immense potential in the service's future.

Hardware

• Sharp (SHCAY) announced that it would initiate operations in its LCD plant this month, two months ahead of schedule in a bid to meet surging demand in bigger but slimmer TVs. The plant, which costs about 150 billion yen (US$1.3 billion), was set to open in October. It is expected to manufacture top-notch panels for flat-panel TV called “eight-generation” TV. Observers note that Sharp was successful in its operations compared with other Japanese electronics maker in competing with cheaper Asian competition. The Osaka-based maker of Aquos brand TVs got a head-start by focusing on flat-panel TVs and has the advantage of making both panels and TVs in-house, instead of having to buy panels from other companies. According to DisplaySearch, Sharp holds about 13 percent of the global market in LCD TVs, even as it is in a tight competition against three strong rivals, Sony, Samsung and Royal Philips Electronics. Sharp said the new plant would produce 15,000 panels a month, enough for 120,000 40-inch TVs. Production will be boosted to 30,000 panels a month by March next year. It looks to sell some 6 million LCD TVs worldwide during the fiscal year ending March 2007, up from 4 million in the fiscal year through March.

• Dell Inc. (DELL) beat Fujitsu Ltd. (FJTSY) in April-June to become the second-largest PC supplier in Japan, according to IDC. Dell is already the world's largest personal computer vendor, but Tokyo-based NEC Corp. and Fujitsu have been the largest and second-largest PC suppliers in Japan in recent years. IDC noted that Dell made use of aggressive pricing and advertising campaigns to boost its market share. NEC remained in the No. 1 spot, with a 19.6 percent share, followed by Dell with 16.1 percent, and Fujitsu with 15.6 percent. Overall PC shipments in Japan, the world's third-largest personal computer market in unit terms, fell to 3.4 million units in April-June, down 2.3 percent from a year earlier and the first decline in more than three years.