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First half shows broad gains for corporate Japan

Profit rises for more than two-thirds of companies on strong global economy

Sony Executive Deputy President and Chief Financial Officer Kenichiro Yoshida announces the company's 2Q results.

TOKYO -- Corporate Japan enjoyed a fruitful April-September half, with 71% of listed companies reporting an increase in net profit for the period, according to Nikkei Inc.'s tabulation of interim results released through Tuesday.

That marks the highest proportion of gainers in four years and the best result since the same period of 2013 -- just when Prime Minister Shinzo Abe's economic stimulus package, or Abenomics, was getting underway. The figure was lifted by exporters such as electronics and machinery manufacturers, whose results were helped by a cheaper yen and a robust global economy.

The Nikkei aggregated the results of 501 nonfinancial companies reported by Tuesday, accounting for 32% of businesses whose fiscal years end in March and 40% of this group's total market capitalization.

Aggregate net profit at these companies grew 49%, the first rise in two years. The U.S. dollar averaged around 111 yen during the half, compared with 105 yen a year before. The weaker currency pushed up exporters' revenues and profits.

Sony reported Tuesday a net profit of 211.7 billion yen ($1.86 billion) for the half through September, eight times the figure from the same period last year and its first record high for the half in a decade. "The demand for semiconductors and television sets surpassed our expectations," said Executive Deputy President Kenichiro Yoshida. Brisk sales of image sensors contributed as well.

Japan Airlines enjoyed a 9% year-on-year net profit increase to 77.9 billion yen, with the favorable global economy spurring travel and transport.

Infrastructure and capital spending also started to pick up. This helped Mitsubishi Electric post a record net profit of 131.1 billion yen, a 48% increase.

Tech tailwinds

Though this strong performance owes generally to a solid global economy, three factors played particularly significant roles. One is worldwide demand for chips as the expanding "internet of things" pushes demand for memory at data centers and elsewhere.

Shin-Etsu Chemical's net profit for the half climbed 27% to an all-time high of 110.7 billion yen. The supply-demand balance for silicon wafers used in chip production "has been extremely tight since January, and it got even tighter after summer," Senior Managing Director Masahiko Todoroki said.

Chipmaking equipment manufacturer Tokyo Electron's net profit more than doubled to its first record high in 10 years. Chief Financial Officer Ryo Hirooka of Hoya, a technology company whose products include mask blanks used in chip production, even warned that the current boom might be overdone.

Another boost came from increased investment in factory automation. Expansion by the manufacturing sector has tightened labor markets in many countries.

Fanuc upgraded its fiscal 2017 earnings forecast after first-half net profit jumped 43% on robust demand for industrial robots. Though orders typically drop off in the second half, "automation demand is unusually strong," Chairman and CEO Yoshiharu Inaba noted. "We haven't seen a slump this year."

Short-handed companies are increasingly seeing a need to reform their work methods, creating business opportunities for providers of support systems. One such enterprise, Obic, saw net profit rise 19% in the first half. President Shoichi Tachibana anticipates growing demand for efficiency-boosting systems.

Contrasting fortunes

Recovering commodity prices have buoyed earnings at many companies as well. Komatsu's net profit surged 171% thanks to growth in mining equipment. "We've reached a good position, particularly in China and Southeast Asia," Executive Vice President Mikio Fujitsuka said.

The rally has also benefited shipping companies such as Mitsui O.S.K. Lines, whose pretax profit tripled in the first half. "Shipping rates are on a recovery track," director Takashi Maruyama said, noting brisk coal shipments to China.

On the other hand, sluggish results were reported by companies that rely on domestic demand, with fiercer competition and labor shortages among the main headwinds. NTT Docomo's net profit declined for the half the first time in three years. The wireless carrier rolled out cheap plans to attract customers tempted by cut-rate smartphones elsewhere, eating into revenue and piling on costs.

Delivery service provider Yamato Holdings reported a net loss of 12 billion yen, unlike last year when it recorded a net profit for the same period. Revenue rose by 3%, but "outsourcing costs surged," senior managing director Kenichi Shibasaki explained.

The labor shortage has made it more expensive for Maruwa Unyu Kikan to secure new drivers as well. Operating profit sank for the first time in three years at the logistics company, whose operations include business-to-business shipping.

Spreading the benefits of the economic recovery to a broader base of companies will be key to sustainable growth.

Nikkei staff writer Masayuki Yuda contributed to this article.


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