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Tim Green

Toshiba Is Equipped to Rebound from Accounting Scandal

by Tim Green | Dun & Bradstreet Editor

February 5, 2016 | No Comments »

Toshiba Corp.’s financial woes continue, with the company warning this week that it will lose more than $6 billion in its fiscal year that ends in March. The company had previously forecast a loss of $4.72 billion.

The losses have grown out of an accounting scandal that overstated Toshiba’s profits by $1.3 billion in its chip, TV, and personal computer businesses over seven years. An investigation found that top executives had pressured lower-level managers to falsely pump up earnings.

In the wake of the scandal, which was revealed last summer, Toshiba has sued former CEOs and other executives. The scandal threw its financials into disarray, and much of its financial reporting has had to be recalculated.

Toshiba has responded by cutting thousands of jobs, selling off parts of the company, and restructuring operations.

Unlike Sharp, which has been weakened nearly to the point of being acquired due to product problems, Toshiba has a seemingly strong product mix on which to base a recovery.

Using Hoover’s company profiles and First Research industry profiles, Hoover’s editors analyzed Toshiba’s Strengths, Weaknesses, Opportunity, and Threats (SWOT). Here’s what we found:

What areas can Toshiba lean on to regain its footing?

Product Diversity — Toshiba is sometimes referred to as the “PCs-to-nuclear-reactor company” because of its wide range of products. Its energy business includes equipment for generating and managing thermal, hydroelectric, and solar power. It’s #1 in nuclear power generation with 28% of the market. Toshiba is the #1 supplier of point-of-sale systems in the world. In medical systems, the company is a top maker of CT scanners, X-ray machines, and ultrasound instruments.

Semiconductor Business — Toshiba’s financial woes would be even worse without the profit generated by its semiconductor operations, according to the most recent financials. The electronic devices and components business, which includes memory chips, was the only division to stay in the black. The company, with partner Sandisk, is to upgrade its flash memory production to 3D NAND flash memory. With a 15% share of the flash storage market, Toshiba is well-positioned to participate in the expected continued growth of the market.

Geographic Diversity — While Japan generates 40% of Toshiba’s revenue, the company’s other sources of revenue are spread throughout the world. Asian markets account for 27% of revenue; North America, 16%; and Europe, 10%. Sales have been particularly strong in Asia.

What could hold Toshiba back?

Restructuring — Toshiba has begun a restructuring process in the wake of the accounting scandal and disappointing sales. The company has started with its semiconductor business from which it is selling its image sensor manufacturing plant to Sony and will exit the sensor business. Toshiba also will leave the white light-emitting diode (LED) business. More restructuring is expected.

TVs and PCs — TVs and PCs are products that most people probably associate with Toshiba. Their contribution to the company’s revenue has not equaled such popularity. The company’s segment that includes TVs and PCs lost billions in the first half of its fiscal year. While its PCs continue to receive favorable reviews, the worldwide market for PCs is stagnating.

What opportunities in electronics could Toshiba exploit?

Proliferation of Mobile Products — Sales of tablet computers and other mobile devices have increased rapidly in recent years, taking market share from the traditional PC segment. Tablet sales growth slowed in 2014, but sales are still forecast to increase 8% in 2015, with more than 200 million units sold worldwide, according to Gartner.

3D Printers for the Consumer Market — 3D printer sales are expected to move beyond the professional sphere and into the home as more traditional 2D printer manufacturers such as HP and Epson enter the 3D consumer market. Also known as additive manufacturing, the technology converts digital models into three-dimensional objects by joining successive layers of material. Sales of 3D printers and related material for the consumer market are expected to grow from $75 million in 2014 to $1.2 billion by 2018, according to Juniper Research.

Wearables — Rapid expansion in the wearable electronic device market could help offset flat or declining sales in traditional computer categories. Broadly defined as computing devices that are worn on the body, wearable technology ranges from fitness bands and other accessories designed to be used with a smartphone or computer to more autonomous “smart wearables” such as Google Glass. Although industry forecasts for wearable electronics vary considerably, the product category is widely viewed as a growth market.

What industrywide threats could further impede Toshiba?

Computer Upgrades Easy to Postpone — Sales of computer equipment depend on rising consumer income and corporate profits. Although consumers and businesses typically replace computers every few years, they can easily delay doing so if finances are weak. While sales of computers tend to rise during times of sustained economic growth, during recessionary periods sales can decline precipitously.

Customers Expect Lower Prices — Demand for computers and peripheral equipment is related to steadily lower prices. Without continuing price declines, the market would probably shrink. In the past decade US producer prices for computers and peripheral equipment have dropped more than 45%.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.


Photo by Flickr user @nseika, used here under a Creative Commons license.

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