Toshiba, which is also Japan's second largest chipmaker, lowered its full year sales forecast for the year ending March 31 because of the stronger yen against the dollar and lower corporate spending on computers.
Toshiba's earnings situation comes amid a massive corporate restructuring at NEC, Japan's largest chip and PC maker. NEC said it was cutting 15,000 jobs amid huge losses. Earlier this year, both Matsushita and Sony reported large drops in profitability, as well.
Part of the problems at Japan's largest technology companies have stemmed from a weak Japanese economy and ongoing consumer concerns about long term economic prospects. Now, a rebounding yen is sapping overseas earnings because sales are translated from foreign currencies back into yen on the main corporate ledgers.
Toshiba said it would have yearly sales of 5.35 trillion yen ($44.7 billion), down 2 percent from its most recent forecast of $45.9 billion.
"We are doing this to reflect the impact of the stronger yen and lower demand in Japan for computer systems than we expected," Toshiba Executive Vice President Kiyoaki Shimagami told Bloomberg.
The company still expects to break even for the year, but said it could stand to post a loss of $142 million-the company's first in 23 years--if the government decides to change corporate taxes in April.
The company's PCs, chips, and consumer electronics devices were in the red in the first half, compounded by slumping sales in its power and industrial systems and heavy electronic machinery businesses.
While prices of dynamic random-access memory chips (DRAMs), used as the main memory in PCs, have stabilized since about last September, demand and prices for more sophisticated logic chips are still weak, he said. "We're still looking at the second half of the next fiscal year for recovery," Shimagami said.
Some of those signs have started to appear. PC sales rose 16 percent in the fourth calendar quarter of 1998. Chip sales were still on the decline in December another 8.3 percent, but that represents a significant improvement from the quarter ending August, when a 30 percent drop was registered.
Another reason companies like Toshiba are looking forward to the second half of 1999: The government is scheduled to implement new tax breaks for investment in information technology in an effort to boost the economy. The government also issued coupons this week for seniors and children in an effort to boost consumer spending.
Bloomberg contributed to this report.