Toshiba Sees Rebound as Apple Leads Demand for NAND

Unlike many beleaguered constituents of Japan Inc, Toshiba Corp, has reason to cheer ballooning sales at Apple Inc - millions of the iPhones it sells are loaded with NAND flash memory made by Japan's last big chip maker.

That Apple boom will help the Japanese conglomerate boost operating profit by almost 50 percent this business year - according to its own forecast - and overcome losses from sliding televisions sales that have hobbled Sony Corp, Panasonic Corp and Sharp Corp.

At times as much as two-thirds of memory chips churned out by Toshiba, the world's No. 2 maker of NAND flash chips behind Samsung Electronics will end up in iPhones, analysts estimate.

"Apple is probably their largest customer and depending on the time of the year when Apple procures from Toshiba I suspect it could be as high as 70 percent," said Damian Thong, an analyst at Macquarie in Tokyo, said ahead of Toshiba's results.

"The next contributor to growth of NAND flash at Toshiba, one of them, will probably be the ramp-up for the next iPhone."

Toshiba on Tuesday forecast an annual operating profit of 300 billion yen ($3.75 billion), above the mean estimate of 281.9 billion yen from a poll of 22 analysts by Thomson Reuters I/B/E/S. Operating profit for the year that ended March 31 came in at 206.65 billion yen, down 14 percent from the previous year, broadly in line with analysts' forecasts.

"Demand for LCD television fell off sharply in domestic markets," Corporate Executive Vice President Makoto Kubo told a press briefing in Tokyo.

Apart from weak TV income, earnings also suffered in the wake of Japan's March 2011 earthquake and tsunami and floods in Thailand last year that disrupted supply chains, Kubo said.

INSATIABLE APPLE

Market researcher IHS iSuppli estimates an insatiable Apple, which sold 35 million iPhones in the three months to March 31, will consume a quarter of global flash memory supply this year. Market revenue will, IHS iSuppli predicts, jump 8 percent to $23 billion.

"We believe Apple's strong results are positive for Toshiba," Goldman Sachs' analyst Ikuo Matsuhashi said in a report ahead of the earnings release. Second quarter iPhone "shipments surpassed consensus projections", he noted.

Toshiba's ability to surf the Apple wave is a rare bright spot among Japan's big electronics firms such as Sony that are struggling to contain their market-grabbing U.S. rival.

Apple's anticipated move into television may further dent the appeal of Japan's once stellar brands, while the growing allure of Apple's devices to gamers represents a new threat to console maker Nintendo.

The " Toshiba-inside" approach - which focuses on making money from components rather than branded consumer electronics - means that losses from its own branded gadgets are less debilitating. Sony, Panasonic and Sharp estimate a combined loss of $21 billion for the business term just ended.

Investors are also looking for a solid performance from Toshiba's other businesses, allowing flash memory to drive profit growth, analysts note. Semiconductors account for less than 20 percent of revenue.

Kubo said the acquisition of Swiss meter maker Landis + Gyr, as well revenue from thermal and water power generator equipment, had helped boost profit at its social infrastructure division.

"They see a third of their profits coming from infrastructure, like the coal power plant they just agreed to build in Taiwan with IHI Corp, that's their real weapon," said Fujio Ando, senior managing director at Chibagin Asset Management in Tokyo.

Like other Japanese conglomerates, Toshiba's business interests are expansive. It makes products ranging from TVs, laptops, light bulbs and refrigerators to nuclear reactors, CT scanners, sewerage plants and escalators.

And tying its longer-term fortunes to Apple's cart alone will not be a guarantee of success.

Taiwan's Hon Hai Precision Industry on April 30 demonstrated the downside to being an Apple supplier. It's operating margin in the January-March quarter eroded to a mere 0.9 percent while Apple's was 39.3 percent.

"Apple is obviously a tough customer with tremendous buying power so there is the possibility that Apple will drive a hard bargain," noted Macquarie's Thong.

Toshiba announced its results after Tokyo markets closed. Its shares ended up 2.9 percent ahead of its results, versus a 0.7 percent gain in the Nikkei. The shares have risen around 1 percent this year compared with a gain of about 8 percent for the broader market.

Sony will report its earnings on Thursday followed by Panasonic on Friday. ($1 = 79.9200 Japanese yen) (Editing by Alex Richardson)