Toshiba Profit Free-Falls on HD DVD Demise

Japan-based Toshiba reported a 95 percent drop in profit in the January-March fiscal fourth quarter, blaming its loss in the high-definition format war that pitted its HD DVD format against Sony’s Blu-ray.

Toshiba reported a 1.25 billion yen (US$12 million) profit for the quarter, compared with 26.17 billion yen ($250 million) a year earlier. Its quarterly sales dropped 3 percent year-on-year to 2.09 trillion yen ($20 billion).

The company’s net profit fell 7 percent for the year ending in March, to 127.4 billion yen ($1.2 billion).

Toshiba shares dropped 2 percent, to 848 yen ($8.12) Friday on the Tokyo Stock Exchange.

A ‘Temporary’ Setback?

“They had to get out of the technology they had invested in, write that off and accept the technology embraced by the marketplace,” Endpoint Technologies Principal Analyst Roger Kay told the E-Commerce Times.

“It’s a pretty big setback, but it’s temporary. They’re just going to have to write it off. They made a lot of investment in this, but they’re a big company and have lots of diversified businesses. They can take the hit and live to rise another day,” he added.

“It’s a huge, huge loss, but at the end of the day, they’ll move on from there,” JupiterResearch analyst Michael Gartenberg told the E-Commerce Times.

“That’s the nature and function of technology. They have thriving businesses related to the digital ecosystem,” he commented. “This was definitely a winner-take-all scenario. If you want to be the standard, you put all you can into it. If you’re fortunate, you win; otherwise, you move on.”

Toshiba abandoned the HD DVD format in February.

The company reportedly may release a player in Brazil that would accommodate both Blu-ray and HD DVD technologies.

However, although that’s a realistic option for the company, it’s by no means a foregone conclusion, Gartenberg noted. “I think there’s any number of different things that are possible going forward here, in terms of the technology. Whether they go with the winner and build their own Blu-ray [player] remains to be seen.”

Looking Ahead

Meanwhile, Toshiba expects a 1 percent increase in profit to reach 90 billion yen ($863 million) in its semiconductor business for the year that ends next March.

However, the company anticipates price declines of up to 50 percent in NAND flash memory chips. Toshiba and California-based U.S. partner SanDisk have plans to build two new chip plants in Japan.

“Toshiba is one of the top suppliers of NAND flash, along with Samsung, and a lot of these products will end up in retail applications and storage devices,” Raymond James analyst Hans Mosesmann, told the E-Commerce Times. “I’d expect the NAND market will grow over the next several years. It is a strategic area that Toshiba continues to focus on. It’s a very desirable area, longer term.”

Bulging chip inventories could pose problems, however, he added. “There’s been an overcapacity of NAND in the last six months, and that probably will be a problem for the remainder of the year.”