What are you looking for ?
Infinidat
Articles_top

Toshiba: Fiscal 3Q15 Financial Results

Will not quit HDD business, down 17% from 3FQ14, but largely restructuring

Commenting its third fiscal quarter ended in December 2015, Toshiba Corp. said to take improvement measures for HDD business, to proceed with profitability improvement and shift to growth areas by reducing model development and rationalizing personnel.

Transformation of the business:

  • Accelerate a shift of development resources to enterprise HDDs and SSDs
  • Narrow the range of models to focus on main products (from 10 to 4 models) to optimize design and development
  • Minimize sales channel for B2C mobile products in the North American market, where profitability is worsening

Personnel rationalization, minimization of fixed costs:

  • Implement an early retirement incentive program in Japan, including personnel relocation and support for outplacement, and reduce headcount by approximately 150 personel
  • Expect to post approximately 4 billion yen of an operating expense for structural reform in FY15
  • Reduce total fixes expenses by more than 10 billion yen in FY16 against FY15.

The storage product business saw significant lower sales for the first nine months of FY15, with revenue at 315.1 billion yen ($2.7 billion), down 17% from the same period of FY14. It also recorded deteriorated operating income.

Toshiba storage

Period Sales in billion of yen Growth
9 mo. FY13 347.4 NA
9 mo. FY14 378.4 9%
9 mo. FY15  315.1 -17%
FY13  476.6 NA
FY14 507.9 7%

Revision of FY15 consolidate business results and the progress of the “Toshiba Rebuilding Initiative

Real also:
Toshiba Could Stop or Sell HDD Business
To concentrate on flash
by Jean-Jacques Maleval | 2016.01.26 | News

Comments

Here we are publishing two excellent comments on the subject:

The best source of information on HDDs, Trendfocus, Inc., wrote the following Executive Brief:

Toshiba to Remain in HDDs with Sharpened Product and Segment Focus

As part of a financial update on its restructuring effort, Toshiba announced that it will continue to compete in the HDD industry.

Although details were limited, we can determine the following:

  • 1/ Toshiba is planning to spend 4 billion yen in restructuring costs in 2016 to reduce fixed costs in its HDD business by at least 10 billion yen. The target is to improve profitability into 2017
  • 2/ The company is planning to cut 150 employees through an early retirement program in Japan.
  • 3/ Development efforts will be consolidated to focus on fewer HDD platforms (from 10 down to 4), and the company will minimize external/branded efforts in the US, a market management characterized as "profitability is worsening."
  • 4/ Toshiba is planning to sharpen its focus on nearline (capacity enterprise) drives and to maintain its solid position in the traditional enterprise segment (10,000 rpm/15,000 rpm).

Frankly, we would have been surprised if Toshiba would have exited the HDD industry altogether, but the moves described above are logical refinements to an effort that yields billions of yen in annual revenue for a division that has been marginally profitable for years.

At the same time, the announcements lead to other questions, three of which are below:

  • 1/ Can Toshiba compete in the nearline market? The company has been challenged to grow share since it claimed a heightened focus on nearline drives some years ago. There is a gap between its HDDs in mass production now and where the is for its customer demand, and we assert that Toshiba may be at least one year behind its nearline competitors in terms of roadmap - especially helium designs. Of note is Toshiba's 2015 nearline market share of 6.2%; despite having concentrated on establishing credible share for more than five years. Toshiba's stated focus on nearline seems appropriate given evolving HDD industry dynamics, so the challenges will be to close the roadmap gap, to deliver crisper execution, and to get into helium designs as soon as possible.
  • 2/ How will a reduced focus on mobile HDDs affect overall cost structure? Toshiba shipped 75.75 million units in calendar 2015 and held a market share of just over 16%. 2.5" mobile/CE HDDs accounted for about two-thirds of its unit output. A reduction in that number will boost overall costs as the company loses leverage with suppliers and factory utilization drops further. On the other hand, reducing its number of products to a few key ones, such as a 1TB/disk SMR model, should set up Toshiba to address the large majority of 2.5" demand for the foreseeable future.
  • 3/ What might the impact be on key partners Showa Denko and TDK? Media partner SDK and head supplier TDK are under growing pressure due to dwindling demand. Toshiba's decision to, in effect, deemphasize mobile HDD production may have lasting impact in its need for media and heads. Even reasonable growth in nearline output will not likely backfill for any lost volumes from lower mobile HDD shipments.

With shrinking HDD TAMs, all HDD vendors are facing a process of triage, cutting back on shotgun blast approaches to technology development and broad product portfolios covering all niches. Toshiba's re-focusing could yield breakthroughs that improve its competitiveness in key markets. It may only take one successful effort, such as the development of a helium nearline HDD, to return Toshiba to a position where it can thrive over the long term.

 

CLSA Limited's research analysts Claudio Aritomi and Amit Garg weigh in on Toshiba's HDD restructuring.

Global HDD (No Toshiba HDD Exit) - CLSA

The details of the restructuring, provided by Amit Garg below, suggest that Toshiba will scale back its focus on notebook and external drives and will intensify its focus on higher-margin enterprise and near-line drives.

Toshiba will continue to play in the notebook market that accounts for 50% of its shipments, but will streamline its operations and minimize the number models available.

Interestingly, Toshiba has grown its enterprise volumes 24% Y/Y in the last three quarters (through September), accounting for 10% of its shipments from 7% in 2014. Toshiba now holds 16% share of the HDD market and 11% of the enterprise market.

By contrast, STX/WDC enterprise drive shipments in that same period increased only 2% Y/Y before declining in C4Q15.

At the margin, this is negative for HDD makers as a more-aggressive Toshiba at the high end trumps scaling back at the low end, which is anyway highly vulnerable to SSD. If Toshiba is unsuccessful (lacks scale) and this ultimately drives an exit from the business, this would ultimately be somewhat positive longer term, although SSD competition will be especially fierce if HDD companies try to raise prices (SSD was not a factor when HDD prices rose in 2011).

HDD implications
There has been some discussion among investors as to whether HDD would be part of the Toshiba restructuring and whether they can exit the business. The announcement suggests they are obviously not exiting the HDD business but refocusing on the higher-value segments and shifting focus away from the lower-value segments. In the near term, this could lead to modest share loss in notebooks but potentially increase share in the higher-value segments. That would be a net-negative at the margin depending on its aggressiveness in the latter. If scale becomes a problem and the strategy fails, that would ultimately pave the way for an exit.

HDD implications if Toshiba ultimately exits
If Toshiba ultimately exits the HDD business, this would be perceived positively if the industry evolves into a full-blown duopoly with better pricing and higher market share offsetting HDD losses. However, given Toshiba's own issues, we believe the industry has anyway operated as a disciplined duopoly over time with price rationalization. Additionally, unlike 2011 when pricing rerated post the Thai Floods and consolidation, the industry today faces an outside competitor (or competitors) in a very aggressive and hungry NAND industry. Thus, any attempt to increase price could be met with greater resistance, with NAND as a viable alternative in many categories. Finally, if Toshiba is ultimately exiting, that obviously tells us something about the long-term fate of the HDD market.

Details of Toshiba's HDD restructuring from CLSA's Amit Garg

  • 1/ Toshiba announced restructuring of HDD operations post market close today. Toshiba is planning to spend 4 billion yen in restructuring costs in 3FY16 to reduce HDD business fixed costs by over 10 billlion yen to 40 billion yen with an aim to become profitable in 3FY17. Based on press release and our initial checks:
  • 2/ Toshiba is planning to cut 150 employees in its R&D center in Kanagawa prefecture (about 10% of plant employees).
  • 3/ Toshiba is planning to shift its focus to the enterprise and near-line HDD market and narrow the focus to fewer models (10 to 4) in 2.5" notebook market by integrating development resources. We are not sure if the company will reduce the scale of 2.5" drives or just the number of models. FYI - Toshiba shipped 50.6 million 2.5" drives in CY2015 out of a total 75.8 million, so 67% of the total.
  • 4/ Toshiba is planning to minimize/exit B2C mobile products for the US market, ie, external branded drives (we estimate US external HDD market accounted for 10 million shipments in CY2015 out of a total 75.8 million, so 13% of the total).

Articles_bottom
AIC
ATTO
OPEN-E