Furukawa Slumps, Slashes

TOKYO -- With the financial damage yet to be toted up from its OFS unit, Furukawa Electric Co. Ltd., the world’s No. 2 optical fiber maker, looks to be doing pretty disastrously on its own.

Reporting its unconsolidated financials today, Furukawa quintupled its half-year loss -- compared to last year -- to ¥5 billion (US$41.1 million) on revenues of ¥203 billion ($1.7 billion), down 13.6 percent from the same period in 2001 due to (guess what): slumping sales in fiber optics and WDM.

In fact, sales of the company’s communications products, which generated 29 percent of its revenues and 50 percent of its operating profit in 2001, were down 45 percent from a year ago, says managing director Hiroshi Wada. Wada told reporters that domestic sales of fiber fell 36 percent and WDM a whopping 59 percent compared to this time last year.

“Extremely severe market conditions are prevailing; any sign of a recovery [in the Japanese economy] is delayed; and the slump is continuing, especially in information and communications,” wails Wada.

The company estimates it’s now on course for a ¥3.6 billion ($29.6 million) loss for the year to March 31 next year. That’s the good news. The bad news is that Furukawa will report its consolidated earnings on November 18, which will include the results from its OFS division, expected to be dismal.

The hefty $2.3 billion OFS purchase from Lucent Technologies Inc. (NYSE: LU) last November was Furukawa’s bid to be the second biggest kid on the block in the fiber market, after Corning Inc. (NYSE: GLW). Furukawa now has a 26 percent market share, compared to Corning’s 30 percent (see Did Furukawa Buy a Lucent Lemon? and Corning Reports Q3)

Furukawa is doing just about as badly as everyone else, including Corning, says UBS Warburg analyst Conny Jamieson. Factoring in OFS, which Jamieson says has already generated $227 million in operating losses to September 30, UBS has Furukawa pegged at a ¥53.4 billion ($439 million) loss for the year, ¥10 billion more than Furukawa estimates.

“In terms of its fiber optics and photonics, Furukawa isn’t suffering. Sales drops of 60 percent are happening across the board,” she says.

But, unlike Corning, which announced restructuring that will leave it with 50 percent of its peak production capacity, Furukawa has yet to clearly say what it will be doing to try to turn itself around. Wada gave some clues today. One, the company will cut 500 more domestic jobs by next March, bringing the company’s Japanese payroll down to about 7,700 from 9,000 in 1998. But it won’t say exactly where from, largely because the company is still talking to local labor unions, says Furukawa spokesman Osamu Suzuki.

Wada said the company will also be “consolidating” its fiber optic production into its Mie factory in western Japan, but won’t say whether it is closing down or just shuttering its Chiba, Tokyo-based production. Furukawa won’t reveal its capacity cutback but feels the move will help shift the supply balance, says Suzuki.

“Furukawa hasn’t said if they are keeping the [Chiba] factory or closing it down. If they shut it down, that’s good. But they haven’t made it clear, and that’s one of the problems,” says Jamieson.

Wada says the company will unveil “various and different measures” management is taking to stem losses at OFS. Furukawa has already promised to take its OFS headcount down below 3,000 this year from 4,977 at the time of purchase (see OFS Drags Down Furukawa). Now, says Suzuki, more jobs are on the block. But we will have to wait to November 18 to find out, he says.

“We’re in a big crunch without OFS. Everyone pays attention to OFS, but we are suffering badly without them,” says Suzuki.

— Paul Kallender, special to Light Reading
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