Furukawa Electric: record loss with warning of worse to come

Furukawa Electric Co, the world“s second-largest optic-fiber manufacturer, posted a record annual loss on 16 May 2003 and warned of more losses ahead, with business still feeling the effects of the t…

Furukawa Electric Co, the world“s second-largest optic-fiber manufacturer, posted a record annual loss on 16 May 2003 and warned of more losses ahead, with business still feeling the effects of the three-year-old telecoms slump. Furukawa“s U.S. optic-fiber unit, has suffered as telecoms carriers cut back on investments after over-spending during the telecoms bubble. “Business is still flat at our North American telecoms operations, so we expect it will face some tough times,” Furukawa Electric Managing Director Hiroshi Wada told a news conference. The company said several hundred more jobs would probably be cut at its U.S. unit, whose workforce has already contracted by more than two-thirds to 2,090 since Furukawa bought it from Lucent Technologies Inc in November 2001. At the same time, Wada said the worst of the telecoms equipment manufacturer“s post-bubble troubles appeared to be behind them. “The last business year brought a massive drop in earnings due to the U.S. telecoms slump, but the key feature here is that the first half seems to have marked a bottom, while the second half saw a pick-up in domestic telecoms-related demand,” he said. Furukawa“s consolidated net loss reached JPY 114.0 billion (USD 979 million) in the business year to 31 March 2003, far in excess of the previous year“s loss of JPY 3.4 billion. The result was in line with Furukawa“s latest forecast in April 2003 for a loss of JPY 115.5 billion . Revenues slipped 7.9% to JPY 710.6 billion (USD 6.1 billion). For the current fiscal year begun 1 April 2003, Furukawa forecast a third consecutive year of net losses with JPY 32.6 billion, slightly above analysts“ median forecast of JPY 30.1 billion. Boosted by cost-cutting measures, Furukawa projected the second half of fiscal 2003 would yield a net profit of JPY 10.8 billion while the full-year net loss at its U.S. optic-fiber unit was seen as contracting by more than half, to JPY 54.1 billion. The projected earnings recovery failed to impress investors. “Its outlook is still very much unclear, especially after the United States built up so much excess capacity in optic fiber infrastructure,” said Kiyoshi Yamanaka, fund manager at T & D Asset Management Co Ltd. Yamanaka said his fund had no investments in Furukawa and no plans to put money into the stock for now. The earnings report followed a lower-than-expected quarterly loss at Furukawa“s larger U.S. rival, Corning Inc, which was helped by non-telecoms operations. Furukawa diversified aggressively into telecoms equipment to offset contracting revenues in its mainstay copper cable business, spending USD 2.3 billion to buy Lucent“s optic-fiber division. Along with other telecoms equipment makers it hoped to profit from a rise in demand for high-speed optic-fiber networks accompanying the boom in Internet use, but was then hit hard when the dot-com bubble burst. Furukawa posted a special loss of JPY 115 billion in the year due largely to a write-down of goodwill in the U.S. company. For 2003, it projected consolidated sales of JPY 770 billion, returning to the level before the 2002 fall. Furukawa expects domestic optic-fiber demand in the current fiscal year little changed from 2002, although NTT East, one of Japan“s two major local phone service providers, cut its planned capital investment in optic-fiber access networks for 2003 by 30% from a year earlier, to JPY 90 billion. The 16 May 2003 figures had little immediate effect on Furukawa“s shares, which finished up 0.38% at 264 JPY, in the middle of a narrow range set before the announcement. The benchmark Nikkei average was down 0.08 %. Shares in Furukawa fell 60.8% during the past business year, underperforming the Nikkei“s 28% decline. (USD 1=116.45 JPY).