Toshiba to halt chip output due to weak demand

Business Materials 5 December 2008 12:48 (UTC +04:00)

Toshiba Corp (6502.T: Quote, Profile, Research, Stock Buzz), the world's No. 2 maker of NAND flash memory, will halt chip production at two plants for nine days due to weak demand, in its first output break in seven years, broadcaster NHK reported on Friday.

Toshiba shares rose nearly 3 percent after the report, but company spokeswoman Hiroko Mochida denied that it planned to temporarily shut down all operations at the factories in Yokkaichi, in western Japan, and Oita, in southern Japan, reported Reuters.

However, she said Toshiba was looking at its operating schedule for the year-end and considering suspending some chip-making lines, adding that this would not be a rare move.

Toshiba on Wednesday said that it would speed up restructuring to cut costs at its loss-making chip operations, faced with faster-than-expected price falls since October and weakening economies around the world.

The NHK report said Toshiba, which competes with Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) and Hynix Semiconductor (000660.KS: Quote, Profile, Research, Stock Buzz), will halt output at the two plants between December 27 and January 4, the first semiconductor plant shutdown since 2001.

Toshiba made the decision after the global financial crisis and economic downturn dampened demand for gadgets such as digital cameras, Apple Inc's (AAPL.O: Quote, Profile, Research, Stock Buzz) iPod and mobile phones that use Toshiba's flash memory, NHK said.

Goldman Sachs analyst Ikuo Matsuhashi said the output stop did not change the brokerage's view that Toshiba would make an operating profit of 70 billion yen ($759 million) or less in the year to March 2009 -- less than half of Toshiba's profit estimate of 150 billion yen.

"Such a move should help prevent Toshiba's inventories from increasing, but not enough to change our view on Toshiba," he said in his report to clients, adding that other companies will likely follow suit.

Slumping demand and excess capacity have caused semiconductor prices to plunge, pushing Toshiba's chip business to a 59.5 billion yen ($645 million) operating loss for the April-September period.

The Yokkaichi factory, partly run with production partner SanDisk (SNDK.O: Quote, Profile, Research, Stock Buzz), is Toshiba's memory factory with the capacity to make 290,000 300 millimeter-wafers per month.

The Oita plant is the company's main system chip production site, with the capacity to make 11,000 wafers a month.

Toshiba shares gained 2.7 percent to 307 yen by midday, against a 0.7 percent rise in the benchmark Nikkei average.N225.