Toshiba Cuts Annual Profit Outlook After 75 Percent Plunge in Q2 Earnings

Toshiba on Friday cut its full-year operating profit outlook after a 75 percent slump in second-quarter profit – dismal results that heighten the uncertainty surrounding its prospects for a buyout deal.

The Japanese industrial conglomerate said its earnings were being hit by a slew of factors including a slump in the hard disk drive market and an appraisal loss on a drop in printer unit Toshiba’s share prices.

It cut its profit forecast for the year ending in March by roughly a quarter to JPY 125 billion (roughly Rs. 7,240 crore).

Kioxia Holdings, a memory chip maker some 40 percent owned by Toshiba, has also said it would cut production by about 30 percent from in October.

The chip market has been hit hard as demand for smartphones and personal computers slides due to sharply higher inflation for many economies, geopolitical tensions and COVID-19 lockdowns in China.

For the July-September quarter, Toshiba posted an operating profit of JPY 7.5 billion (roughly Rs. 430 crore). That was far short of a Refinitiv consensus estimate of JPY 36.9 billion (roughly Rs. 2,140 crore) from four analysts.

The weak earnings outlook could have implications for would-be buyers of the conglomerate, given that, according to sources, Japanese banks are cautious about financing a buyout deal.

A consortium led by private equity fund Japan Industrial Partners (JIP) submitted a bid to buy Toshiba for around $15 billion (roughly Rs. 1,21,280 crore) that lacks key commitments from banks, the Nikkei newspaper said on Monday, raising questions about whether the offer can succeed.

State-backed fund Japan Investment Corp (JIC) is also preparing a proposal. The fund has been in talks with US private equity fund Bain Capital and north Asia fund MBK Partners to form a separate consortium, sources have said.

JIP and JIC have declined to comment.

Masayoshi Hirata, Toshiba’s chief financial officer, declined to comment on specifics of the sale process, saying only that it is in an “important phase”.

© Thomson Reuters 2022