Toshiba Lays Out Agenda

MAY 25, 2011 THE WALL STREET JOURNAL

By JURO OSAWA
TOKYO—With its once-promising nuclear power business surrounded by difficulties, Toshiba Corp. Tuesday rolled out an aggressive spending plan for the next three years in an attempt to find a viable long-term strategy partly through acquisitions.

Under the plan, the Japanese technology conglomerate said it could spend more than ¥3 trillion (about $37 billion) on capital outlays, research and development as well as mergers and acquisitions over the three years through March 2014, as its improving balance sheet has given it more spending options.

Toshiba plans to spend ¥1.450 trillion on capital expenditure and ¥1.100 trillion on research and development. That compares with its plan a year ago to spend ¥1.3 trillion on capex and ¥1.07 trillion on R&D over three years through March 2013.

In addition, Toshiba said that it now sees room to spend an extra ¥700 billion over the three-year period on various other investments including mergers and acquisitions, bringing its total investment capacity to ¥3.25 trillion.

The company didn't specify how it would pay for the outlays. But the investment plans come on the back of improving earnings. In the just-ended fiscal year, Toshiba swung to a net profit of ¥137.85 billion, compared with a loss of ¥19.74 billion a year earlier, on ¥6.399 trillion in revenue. It was the company's first annual profit in three business years.

A main focus of Toshiba's M&A will be social infrastructure-related businesses, such as advanced power distribution systems and equipment, electric power and railways, said Toshiba President Norio Sasaki at a press briefing.

"In those businesses, M&A deals are very efficient because they allow you to save time" by giving access to a whole new customer base, he said. "We see more potential M&A targets in thermal power and advanced power distribution."

His comments come days after Toshiba unveiled a $2.3 billion deal to buy Landis+Gyr, a Swiss maker of advanced power meters that play a central role in what are known as smart grids—highly efficient power distribution networks controlled using the latest information technology.

The need to strengthen social infrastructure businesses other than nuclear power is much greater now, after Japan's March 11 earthquake and tsunami triggered the disaster at the Fukushima Daiichi plant, where some of the reactors were supplied by Toshiba.

"Toshiba can no longer count on a constant growth of its nuclear power business, and that ruins its long-term strategy," said Mizuho Investors Securities analyst Yuichi Ishida.

Although Toshiba is a major global supplier of flash memory chips used widely in mobile gadgets such as smartphones and tablet computers, the company had been hoping that its nuclear power operations would provide it with a more stable and predictable source of revenue that would complement the volatile nature of the chip business.

"At this point, it's not clear whether acquisitions and other steps to strengthen new businesses will be enough to make up for an expected slowdown in nuclear power," Mr. Ishida said.

Toshiba Tuesday warned of uncertainties in its nuclear power operations, saying that its previously targeted orders for 39 reactors, and ¥1 trillion in sales, both expected through March 2016, may be pushed back by several years following Japan's nuclear crisis.

"To be honest, we don't know exactly how long the delay will be," said Mr. Sasaki. He said the prospects over the next few years will depend largely on the outcome of discussions over nuclear power and energy policies around the world. "We will see how the Fukushima case will be reflected in the global nuclear safety regulations," he said.

Toshiba's wide-ranging operations include consumer electronics, semiconductors and electric power. Although the Toshiba brand is usually associated with TVs and laptops, the company's products and services for corporate clients are more globally competitive.

Write to Juro Osawa at juro.osawa@dowjones.com