TOKYO -- While component makers are suffering from slowing smartphone demand, Japanese semiconductor producer Rohm appears to be rebounding from the worst of the lull.
The company's group net profit for the year ending March is expected to fall to 12 billion yen ($107 million), roughly half the previous year's total. Still, the figure is 2 billion yen higher than the initial projection, mainly thanks to reduced capital spending, which has lowered the depreciation costs of fixed assets.
Satoshi Sawamura, president of Kyoto-based Rohm, spoke with The Nikkei about how his company is trying to focus more on automotive- and industrial-use semiconductors.
Q: Rohm projects that its net profit will significantly fall this year. What are the negative factors?
A: The yen's appreciation is killing our operating profit, wiping out more than 12 billion yen. We have revised the foreign exchange rate forecast for October and later to 100 yen per dollar from previous 110 yen. After excluding the currency impact, our revenue and operating profit will be higher than the year before.
The prices of chips for liquid crystal displays are coming under intensifying pressure, so we have downwardly revised our sales forecast. And since our profitability is deteriorating, we are trying not to take too many orders for these chips.
Also, we began disposing unprofitable business units, including our lighting business, in May. This process is now almost complete. I would say we have already seen the bottom this year. Our marginal profit ratio (an indicator of how profit will expand as sales increase) is high [at about 70%]. This means our profit will sufficiently grow as sales increase.
Q: Could you give some examples of how you managed to cut fixed expenses?
A: We have tried to avoid capital investments in research and development that are not urgent. We had planned to expand a factory in the Philippines to make semiconductors for automobiles. But we postponed the plan to 2017 or later.
We also began production reforms in the fall of 2014, including the design of production lines. This has produced spare output capacity, and we are now able to respond to growing demand from customers even without additional facilities. This will bring a cost-cut effect of 7.6 billion yen this fiscal year.
Q: Automotive components make up one of Rohm's key growth areas. Where do you see this business going?
A: We are seeing the automobile adopt more electronics, and our components are being increasingly used as actuators and driving systems. We transferred some manpower from our panel business to the automotive division to enhance the development of car-related products.
With automakers accelerating their electric car initiatives, we are receiving more orders for power semiconductor devices that control and convert electricity supply. About five years ago, we began enhancing the development of components for products that can expect higher demand in the future, such as electric cars and industrial motors. These efforts are beginning to pay off in a visible way.
We project that the combined sales of automotive- and industrial-use semiconductors will account for 43% of total sales this year. We want to raise this to 50% by fiscal 2020.
Q: Rohm is cash rich, with 300 billion yen or so on hand. How will you use so much dough?
A: Having a sufficient amount of cash will allow us to be flexible when it comes to making acquisitions or capital investments. We may consider buying businesses in areas such as analogue and discrete semiconductors. Enhancing our overseas sales chain is also necessary. We can afford to spend 100 billion yen in this regard.
Q: Your return on equity forecast has remained at 2% or so. What can you do to raise this?
A: We don't have to be keen to overly downsize the equity by means of, say, a share buyback. Instead, I want to raise the ratio to more than 5% as early as possible by making good decisions regarding acquisitions, expansion and other factors that impact growth.