Japanese Tech Stock Weekly Summary

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

Semiconductors

• Fujitsu (FJTSY.PK) is to spin off its loss-making chip business as increasing competition is forcing the Japanese group to create a leaner organization. Alongside NEC (NIPNY) and Hitachi (HIT), which make a wide range of goods from chips to nuclear reactors, Fujitsu is finding it increasingly difficult to compete with its nimbler rivals in other parts of Asia and in the U.S. But rather than sell underperforming units to private equity groups or foreign rivals, Japanese companies have largely preferred to spin off into subsidiaries controlled by the parent company. Fujitsu said it needed to improve efficiency and reduce development times to compete with its rivals, including Toshiba (TOSBF.PK) and Infineon (IFX). The unit is expected either to break even or make a small profit this year, following a loss of about 20 billion yen a year ago. For the year ending March 31, Fujitsu forecasts its chip business sales will rise by 12 percent from a year earlier to 530 billion yen (US$5 billion).

• Toshiba is planning to give up on its HD DVD format for high-definition DVDs, conceding defeat to the competing Blu-ray technology backed by Sony (SNE). The move will likely put an end to a battle that has gone on for several years between consortiums led by Toshiba and Sony vying to set the standard for the next-generation DVD and compatible video equipment. Toshiba is expected to suffer losses running to tens of billions of yen (hundreds of millions of dollars) to scrap production of HD DVD players and recorders and other steps to withdraw from the business.

• Sharp Corp. (SHCAY.PK) and Kansai Electric Power Co. are considering jointly building a solar power generation plant that could become one of Japan's biggest when completed on coastal land in Sakai, Osaka Prefecture. The plant is planned to be built on the site of an industrial waste disposal facility owned by the Osaka prefectural government. Once completed, its power output capacity could exceed that of the 5,200 kilowatts at Sharp's solar power generation system in Mie Prefecture, currently the largest of such plants in Japan.

• Toyobo Co. has come up with a way to fabricate films for printed wiring boards that are only 5 microns thick. At half the thickness of the company's existing products, the new films are the thinnest in the industry, beating out the 7.5-micron versions made by Ube Industries Ltd. Toyobo plans to market its new film to device makers starting in April 2009. The circuit board films are made from a solution of a polyimide resin that is spread out and dried, then rolled. The resin needs to be heated to more than 300 C to drive off the solvent, a process that causes the resin to expand, which can create uneven waviness in the film. Toyobo reduced this thermal expansion by five-sixths by adding polybenzazole molecules to the resin, pushing its heat resistance above 500 C from the usual 350 C. The firm also modified the rolling mechanism so the thinner film could be rolled without damage.

• Hitachi, Ltd. and Matsushita Electric Industrial Co., Ltd. (MC) announced the conclusion of a formal contract related to a comprehensive liquid crystal display [LCD] panel business alliance. A basic agreement regarding this alliance was reached on December 25, 2007 by Hitachi, Matsushita, and Canon Inc. (CAJ). Under the terms of this agreement, Matsushita will acquire a 24.9% stake in Hitachi Displays, Ltd., a wholly owned Hitachi subsidiary that makes small and medium-sized LCD panels, from Hitachi by March 31, 2008, pending regulatory approval. Matsushita will then acquire for 66 billion yen (US$612 million) large IPS LCD panel-related businesses, including the total issued shares of IPS Alpha Technology, Ltd., owned by Hitachi Displays once all conditions are met. Meanwhile, Hitachi will consider holding the IPS Alpha's share up to 10%. Until this deal is executed, Hitachi Displays will retain majority ownership of IPS Alpha. However, under U.S. accounting standards, IPS Alpha will become a Matsushita consolidated subsidiary as of March 31, 2008.

• NEC Electronics Corp. (NELTY.PK) will introduce an early retirement plan to reduce its local workforce by about 500 or 3 percent by March 30 from the current 18,000 as part of a move to consolidate its manufacturing facilities in Japan. NEC Electronics currently has about 24,000 employees worldwide. The loss-making subsidiary of electronics giant NEC Corp announced in November a plan to consolidate its six semiconductor-making units into three in Japan to accelerate its cost-cutting efforts and turn around its operations.

Internet

• Rakuten Inc. announced that the group’s operating profit in 2007 plunged 99.6 percent from the previous year to 118 million yen (US$1.1 million), as it set aside hefty reserves to cover borrowers' claims at its financial unit for reimbursements of excessive interest charges. Rakuten's consolidated sales went up 5.2 percent to 213.94 billion yen (US$2.0 billion), helped by its healthy mainstay online shopping mall business as well as its solid online travel services and professional sports operations. Its group net profit swelled about 14 times to 36.9 billion yen (US$0.34 billion), due to a one-time gain stemming from sales of shares in its investments in Ctrip.com (CTRP), a consolidator of hotel accommodations and airline tickets in China.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.