TOKYO -- Toshiba on Wednesday slashed its operating profit forecast for fiscal 2018 by 66% to 20 billion yen ($181 million), barely three months after forecasting 60 billion yen for the year.
The cut came as the group reported a 94% plunge in operating profit for the third quarter to 1 billion yen, on a 6% drop in revenue. Rising costs in its energy business and a 9.8 billion yen goodwill impairment to semiconductor equipment subsidiary NuFlare Technology -- stemming from a sharp decline in share price -- accounted for the drop in earnings and the revised forecast, the group said.
The industrial conglomerate has been working to put its financial troubles behind it with plans to invest in new fields like the "internet of things." But it continues to struggle to find a way forward without Toshiba Memory, the crown jewel semiconductor business it was forced to sell last year.
"The downgraded forecast is the result of one-time costs and making allowances early on for potential risks," Chief Financial Officer Masayoshi Hirata said at an earnings briefing in Tokyo on Wednesday.
The sale of the chip business also means that it is no longer included in earnings on an operating basis. As part of the deal, Toshiba reinvested for a stake in the business, so it is an equity-method affiliate and remains part of net results.
Revenue for the current year through March is forecast at 3.6 trillion yen, down 8% from the prior year and almost unchanged from the previous forecast. Net profit is expected to reach 870 billion yen, up 8% on the year, thanks to the Toshiba Memory sale, but this too represents a downward revision from the previous forecast of 920 billion yen.
The group still owns about 40% of Toshiba Memory, and Hirata acknowledged that the company's large stake in the unit could pose a risk if the latter's performance deteriorates. Asked whether Toshiba was reconsidering its shareholding, however, Hirata said, "We don't have any conclusions on that right now," and emphasized that there is big potential in the chip business.
Toshiba, which in fiscal 2017 logged 86.1 billion yen in operating profit, said it would refocus its resources over the next five years on expansion in more promising areas such as the internet of things.
Toshiba also announced cost-cutting measures as part of its midterm business plan through March 2024. Some 7,000 jobs would be cut, roughly 5% of the total workforce. The company expected cost savings of about 180 billion yen in the first three years. It highlighted the need to develop new earnings streams, such as digital technology, to take the place of its memory division.
The group has yet to come up with a new driver for growth to replace Toshiba Memory, which at one point was making nearly 500 billion yen in profits. Its most profitable business right now is retail sales solutions, such as point-of-sale systems, under Toshiba Tec. But even that has limited sales and a roughly 4% profit margin. Infrastructure businesses like railways are expected to play a larger role in the future, but their margins are still under 3%.
In order to spur growth, Toshiba will spend more than 1.7 trillion yen on research and development and capital investment under its midterm business plan. It is building a new plant for lithium-ion batteries used in trains and cars.
Another key part of the plan is a greater focus on the internet of things, a pet cause of Chairman and CEO Nobuaki Kurumatani, who took the reins last April. The company has brought in a former distinguished engineer at IBM Japan and a former executive at Siemens' Japanese unit to lead its digital transformation. But it will face an uphill battle against more established rivals like Hitachi and Siemens.
Toshiba aims to log 140 billion yen in group operating profit next fiscal year, the first under its midterm plan. It could face increased pressure from activist shareholders if it fails to engineer a quick turnaround.