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Japan Chip Makers’ Profits Still Pivot On DRAMs

October 25, 1996

TOKYO (AP) _ First-half earnings results released Friday by Japan’s big five semiconductor makers offered more evidence that industry profits are still strongly linked to dynamic random access memory chips.

Hitachi Ltd., Mitsubishi Electric Corp., and Fujitsu Ltd. all posted lower earnings for the first six months of the fiscal year, while Toshiba Corp. and NEC Corp. posted increases.

While plummeting prices for 4- and 16-megabit DRAM chips meant lower profits for most of the companies, analysts say a lucrative DRAM technology license agreement with Taiwanese memory chip maker Winbond Electronics Corp. brought Toshiba a windfall in the just-ended period.

Fumiaki Sato, a vice president at Smith Barney International, estimates that Toshiba received as much as 12 billion yen to 13 billion yen ($106 million to $115 million) in fees from the Taiwanese chip maker over the six-month period.

A Toshiba spokesman declined to disclose the amount of royalties received from Winbond, but he conceded that the fees were a factor in the company’s impressive performance in the just-ended period.

NEC had some extra help in the just-ended half that it’s not likely to get again soon. The company’s earnings got a significant boost from a 10.83 billion yen ($95.8 million) profit from the sale of land.

At other chip makers, the negative effects of weak DRAM prices completely overshadowed what should have been a very profitable half-year.

The dollar’s almost 20 percent appreciation against the yen over the past year should have helped these export-dependent companies match or better their year-earlier results, analysts say.

In last year’s fiscal first half, the dollar bought an average of 88 yen, but it jumped to 108 yen in the just-ended half. A stronger dollar helps Japanese exporters by reducing the prices of their products overseas, while increasing the yen-denominated value of the profits they bring home to Japan.

Luckily for the chip makers, there’s growing evidence that DRAM prices have stemmed their slide. Most analysts agree with the companies that chip prices will stabilize over the next few months.

Because chip prices had already begun to fall by last autumn, the year-on-year profit impact will probably be less pronounced in the current second half, says Yutaka Sugiyama, an analyst at UBS Securities Ltd.

Fujitsu reported 3.88 billion yen ($34.3 million) in earnings for the six months ending in September, a 87 percent drop from the 30.6 billion yen ($270.8 million) earned in the same period last year.

Mitsubishi Electric, which only reported earnings for the parent company, posted 16.34 billion yen ($144.6 million) for the past six months, down 13 percent from 18.85 billion ($116.8 million) reported last year.

Hitachi’s parent company earnings dropped 39 percent, from 37.91 billion yen ($335.5 million) reported in the first six months of last fiscal year to 23.24 billion yen ($205.7 million) posted this year.

Toshiba’s parent company earned 29.24 billion yen ($258.8 million), up 18 percent from last year’s 24.73 billion yen ($218.8 million), and NEC reported group earnings of 31.21 billion yen ($276.2 million), a healthy 54 percent over the 20.24 billion yen ($179.1 million) reported in the first six months of last fiscal year.

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