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Japan-Update

Japan Inc. diverges on resources, foreign demand, smartphones

Cheap oil was a negative for some and a positive for others.

TOKYO -- Amid mixed first-half earnings at Japanese companies, resources, overseas demand and smartphones emerged as three key factors either bolstering or buffeting results.

     Commodity price swings shuffled the top earners among big trading houses. Mitsubishi Corp. booked a 39% net profit plunge for the April-September half due to low coal and crude oil prices, ceding the top spot to Itochu, which is less reliant on resources and booked a record profit.

     "Resource prices may remain low for longer than expected, and we may possibly put off investments," Mitsubishi President Ken Kobayashi said.

     Medium-term contracts of Dubai crude are now trading at about $57 a barrel, down by about half from a year earlier. And the impact is far-reaching.

     Oil wholesalers, for one, had to book massive inventory valuation losses. JX Holdings and two other major companies logged about 170 billion yen ($1.36 billion) in such losses combined.

     On the flip side, cheap crude is a positive for many of Japan's corporations, which are dependent on resource imports. Chemical companies enjoyed fatter margins thanks to the falling price of naphtha, a key feedstock. Sumitomo Chemical booked its first record interim profit in nine years, and Mitsui Chemicals its first in eight years.

     Foreign markets were another big factor, with many companies having expanded overseas in the past few years.

     Komatsu took a hit from a slowdown in the Chinese market. With infrastructure construction declining, Chinese sales of construction machinery and vehicles plunged 44%. "We don't know how long the demand will remain reduced to half," said Chief Financial Officer Mikio Fujitsuka.

     With the decelerating Chinese economy also affecting other emerging markets, Seiko Epson suffered from declines in the Brazilian real, which squeezed margins on its printers and other products.

     As consumption replaces investment as the driver of the Chinese economy, those who adapted well managed solid performances. Casio, which rolled out digital cameras with selfie functions, enjoyed brisk sales of the products despite high prices of 100,000 yen or more.

     As the U.S. economy picks up, automobile demand is rising. High-margin models are faring particularly well, with earnings amplified by the weaker yen. Toyota Motor, Subaru maker Fuji Heavy Industries and others booked record profits, citing stellar North American performance.

     Among food makers, Kikkoman beefed up soy sauce sales amid a boom in the popularity of Japanese food, and overseas revenues jumped about 20%.

     Smartphones were another major earnings factor. Earlier considered a hot field, the market is now saturated. Winners in this area flourished on the back of one-of-a-kind offerings. Murata Manufacturing, which makes core components essential for high-speed data communications, backed by its miniaturization technologies, saw unit prices rise, according to President Tsuneo Murata. The company defied the general downward pressure on prices in the market.

     Sony enjoyed demand growth in image sensors used in high-resolution smartphone cameras. The company has the world's top market share in such sensors. It booked a large pretax profit, turning around from a loss a year earlier after improving its operations.

     In contrast, Sharp saw its LCD business bleed 26.4 billion yen in red ink after going on the offensive in small- and midsize panels and getting stung by price competition in China. Kyocera downgraded its fiscal 2015 pretax profit guidance due to sluggishness in chip components for low-price smartphones.

     Overall pretax profit for listed companies is seen increasing 7% for the full year ending in March. How slower-performing companies handle adversity will go a long way toward determining how they fare.

(Nikkei)

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