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Toshiba (TOSBF) |
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WIKI ANALYSIS
Toshiba Corporation (OTC: TOSBF) is a leading manufacturer of electronics, digital products, and social appliances. Toshiba is the world's second largest maker by market share, after South Korea's Samsung Electronics Co., of NAND flash memory chips and is a chip supplier for the iPhone. NAND memory chips are used in mobile phones, digital cameras, and laptop computers. Despite falling memory prices, Toshiba is counting on strong flash memory demand to continue lifting its overall earnings due to strong demand for smartphones.
Its diversified offerings means that Toshiba is involved in complex relationships with companies that are sometimes competitors and other times partners. Toshiba's semiconductor division co-developed the main processing and graphics chips used in Sony's advanced video game console, the PlayStation 3. On the other hand, Toshiba's digital products group co-invented the HD-DVD format, which lost the fierce battle with Sony's Blu-Ray format for dominance of the next generation media format.
Yet another complicated relationship exists between Apple and Toshiba's NAND flash memory business, which is the second largest player in the flash memory market. Apple's wildly popular iPod and iPhone in large part drives the market for flash memory. At the same time, Toshiba designs and manufactures Microsoft's attempt to dethrone the iPod (the Zune player).
In addition to selling consumer-oriented technologies, Toshiba also builds large infrastructure products, notably nuclear power generators. Toshiba placed a $5.4 billion bet on nuclear energy by purchasing a majority 51% stake in Westinghouse, allowing the company to complement its own nuclear technologies. Increased focus on global warming, rising energy prices, and legislation mandating lower carbon emissions all drive the increased use of nuclear energy, which is among the cheapest and cleanest of all mainstream and alternative energy types. On the other hand, nuclear energy faces significant hurdles of public acceptance, which are often indelibly marred by major accidents such as Three Mile Island (U.S., 1979) or Chernobyl (Ukraine, 1986).
Company Overview
Toshiba resulted from the 1939 merger between Tokyo Electric Company, a company then responsible for electric incandescent lamps and consumer electronics, and Shibaura Engineering Works Co. Ltd, one of Japan’s largest manufacturers of heavy electrical apparatus at the time. The company changed its name from Tokyo Shibaura Electric Co. to Toshiba Corporation in 1978.
Business and Financial Metrics
Fourth Quarter Fiscal 2010 Earnings[1]
Toshiba reported that strong demand for flash memory used in smartphones such as Apple's iPhone helped it increase earnings for the fourth fiscal quarter to 48.6 billion yen ($538.5 million), up from a 183.96 billion yen net loss a year earlier. The company also recorded an operating profit of 104.28 billion yen in the January-March period, reversing a loss of 74.02 billion yen a year earlier. Revenue rose 11% to 1.847 trillion yen from 1.672 trillion yen.
For the 2010 fiscal year, Toshiba's net loss narrowed to 19.74 billion yen from 343.56 billion yen. It posted an operating profit of 117.19 billion yen, compared with an operating loss of 250.19 billion yen in fiscal 2009. Revenue fell 4.1% to 6.382 trillion yen from 6.655 trillion yen in fiscal 2009.
Business Segments
Products and Services
Since its inception, Toshiba Corporation has expanded into several markets, including the atomic, elevator, medical, and energy industries.
Electronic Devices
One of the more important components of the electronic devices segment is the semiconductor business.
NAND Flash
Toshiba has entered into a strategic relationship with SanDisk (SNDK), while investing ¥200 Billion ($1.7 billion) in the semiconductor market. Toshiba plans to devote ¥1 Trillion ($8.4 billion) to semiconductor applications, some of which will be used to complete a fifth NAND flash line plant. Toshiba's fourth NAND Flash line is already in the works in Yoakkaichi.
Key competitors in this segment include Samsung Electronics and Hynix Semiconductor.
Cell Broadband Engine Architecture
Toshiba designed the Cell processor in collaboration IBM and Sony, which implemented the chip in its advanced video game console, the PlayStation 3. Toshiba is also responsible for the Sony PlayStation 3 Graphics Processor RSX.
Digital Products
Toshiba manufactures a wide array of digital consumer products, including mobile phones, hard drives, notebook computers, and DVD players. Some key areas in this business are:
Flat Screen Panels
Toshiba allied with Canon to provide Surface-conduction Electron-emitter Display (SED) flat panel screens. It plans to invest ¥180 Billion ($1.5 Billion) in its Himeji SED mass production plant.
MP3 Player
Toshiba's presence in the MP3 market is noted by its own Gigabeat line and its partnership with Microsoft to design and manufacture the Zune MP3 Player. Toshiba competes against Apple's dominant iPod franchise in the portable music player industry.
Social Infrastructure
Social Infrastructure includes power plants, elevators, and x-ray apparatus among other offerings. Toshiba became the only company able to offer both boiling water and pressurized water nuclear reactors when it purchased Westinghouse, a company known to cater to the nuclear electric power industry. Toshiba is also known to be involved in thermal, hydro-power generation, and fuel cell systems.
Trends and Forces
NAND Flash Memory Price Fluctuation
While flash memory prices have decreased over time, other factors play into Toshiba's memory business. The Apple iPhone or new Apple iPods boost overall demand--and prices--of the NAND flash memory market due to the dominance of such products (Apple had sold over 100 million iPods). Toshiba's success in NAND will largely depend on consumer device trends which use this kind of memory; devices include portable media players, digital camera and mobile phones. It should also be noted that, Toshiba was recently ordered to pay Lexar Media, Inc. $380 million for violating trade secrets in NAND technology.
The Next Generation: Video Game Consoles and DVD Formats
Toshiba hedged its bet for both Sony's PlayStation 3 and Microsoft's XBox 360 by playing a large role in the creation of both HD-DVD (an option for XBox 360) and the Cell Microprocessor, which is the main chip in the newest PlayStation. The success of either or both consoles may greatly influence Toshiba's success in its related business lines.
While Toshiba played both sides of the fence for video games, it is still at the mercy of several forces that are out of its direct control:
- Electronic goods such as video game consoles and DVD players will mature over time, leading to increased supply and lower prices. While Toshiba enjoys relatively higher margins at the beginning of a consumer electronics cycle, margins will likely erode over time.
- Toshiba can do only so much to drive consumer adoption of technology regardless of technological superiority or lower prices. For example, Wal-Mart's or Best Buy's position as leading global distributors of electronics goods may have an impact on the outcome of the video format warfare.
- Finally, consumers purchase electronic components not just solely based on their technological superiority but also based on the available content, which is developed to a large extent by movie and video game studios.
Nuclear Energy
Toshiba placed a $5.4 billion bet on nuclear energy by purchasing a majority 51% stake in Westinghouse. The acquisition allows the company to offer pressurized water reactors, a more advanced technology it did not previously have, to complement its legacy boiling water reactors. Westinghouse had been the main contractor for 60% of pressurized water reactor plants in North America and signs point to the U.S. building approximately 200 new nuclear plants over the next 20 years.
Nuclear Energy is one of the cheapest, most scalable sources of electricity; the cost of generating 1kW unit of electric power through nuclear means is 1.5 cents, compared with 6 to 7 cents for natural gas.
The issue of global warming may further boost the acceptance of nuclear energy, especially if lawmakers pass legislation to mandate lower carbon emissions or carbon trading markets take off. Nuclear energy is the cleanest of mainstream and alternative energies from a green house gas emissions standpoint.
However, nuclear power must overcome very significant hurdles of public acceptance, which are often indelibly marred by major accidents such as Three Mile Island (U.S.) in 1979, Chernobyl (Ukraine) in 1986 or Fukushima (Japan) in 2011.
Competitors
A diversified global manufacturer of many different offerings, Toshiba competes with a wide range of companies. Two key areas of competition are its semiconductor and digital products businesses.
Semiconductor Industry
Toshiba, like all other semiconductor companies, trail market leader Intel (INTC). The overall industry has seen recent shifts in market share, as Intel's dominance has fallen while Advanced Micro Devices (AMD), ranked fifth behind Toshiba, nearly doubled its market share in a matter of 12 months. Toshiba has see relatively modest market share growth of 12%.
For NAND Flash market in particular, Toshiba ranks second behind Samsung Group and ahead of Hynix. It is in NAND where Toshiba has grown faster (20%) than Samsung and Hynix. Other relatively minor player such as Intel and Micron may pose threats in the near future, as their respective NAND businesses have grown rapidly. Intel in particular more than doubled its revenue in one quarter and, being the leader of the semiconductor industry, possesses large amounts of capital to fund a strong research and development and build production facilities.
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