Japanese electronics giant Hitachi said Wednesday profits jumped sharply in the nine months to December but it cut its full-year forecasts sharply, citing falling prices and lower profitability in some IT projects. Net profit rose 759 percent from a year earlier to 67.8 billion yen (652 million dollars) while pretax profit was up 51.4 percent to 206.91 billion yen on sales of 6.43 trillion yen, up 6.0 percent.
Hitachi said it faced weaker demand for digital products and rising oil and other raw material prices while the Japanese economy lost steam on slower exports and capital spending.
"Due to plunging prices of digital home appliances and electronic devices, we are now destined to fall short of the previous revenue and profit targets," Hitachi senior managing director Takashi Miyoshi said at a news conference.
Going forward, Hitachi expects the Asian economies to remain healthy on strong Chinese demand but sees slower growth in the United States as the effects of tax cuts and low interest rates fade.
"The Japanese economy is expected to slow further as demand for digital consumer electronics softens and a drop in plant and equipment investment begins to have an impact," the company said in a statement.
Hitachi also expects to double restructuring charges to 40 billion yen for the year to March in the face of falling sales prices and worsening profitability in some projects in the information technology (IT) business.
The company said that for the year to March 2005, it now sees net profit sharply lower at 50 billion yen, down from the 100 billion yen projected earlier, and pretax profit at 235 billion yen rather than 300 billion yen.
Operating profit is now estimated at 260 billion yen, down from 300 billion yen, and revenue at 8.84 trillion yen, down from 8.90 trillion yen.
At a glance, the 50 billion yen net profit for the year is smaller than the nine-month total of 67.8 billion yen which would imply a net loss in the March quarter but the calculation is more complex, an Hitachi official said.
"We are not providing a forecast for the fourth quarter," said Hitachi public relations manager Machiko Ikenoya.
The biggest reason for the sharp drop in the net profit forecast is the company is planning to implement large-scale tax write-offs on equipment in unprofitable segments, she said.
"We are trying to turn the structure into a more profitable one as much as possible within the current fiscal year because it appears tough to hit the targets in our medium-term plans," said Ikenoya.
Hitachi has forecast nine trillion yen in sales and 400 billion yen in operating profit by the end of the year to March 2006.
In the three months to December, Hitachi's net profit jumped more than 10 times to 26.6 billion yen thanks to proceeds from the listing of Elpida Memory and a profit contribution from Renesas Technology.
Elpida is a joint venture between Hitachi and NEC Corp while Hitachi owns Renesas Technology with Mitsubishi Electric Corp.
Elpida Memory, Japan's only maker of dynamic random access memories (DRAM), made a strong trading debut on the Tokyo Stock Exchange in November.