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Japan's High-Tech Industry Braces for Heavy Losses in Chip-Making Operations

May 26, 1987|DONNA K. H. WALTERS | Times Staff Writer

TOKYO — Summer--so hot and muggy in this city that steam seems to pour from subway and train stations along with the nearly 15 million daily commuters--is coming early this year for many of Japan's large electronics companies.

Corporations here have begun to report their year-end financial results, setting in motion a monthlong ritual that closes with shareholder meetings in late June. Already the management and directors of some companies, particularly those whose products include semiconductors, are beginning to sweat.

The firms are revealing sagging profits; their chip-making divisions, for the most part, had such huge losses in the fiscal year ended March 31 that the red ink no longer can be absorbed quietly.

At last, the worldwide semiconductor industry recession, exacerbated by the rising yen and trade frictions, is catching up with Japan's high-technology industries.

By the time the annual financial reporting season has ended, some of the world's largest chip makers, including NEC, Hitachi and Fujitsu, will be well into restructuring programs that likely will permanently change those corporations.

The news will be so bad, some analysts here have predicted, that corporate directors will resign from their board seats. Following Japanese custom, they will accept responsibility for the chip losses and the pain those losses will bring to the companies' employees and stockholders.

Although the companies do not break out results by division, most admit that their semiconductor operations have been troubled.

Figures Show Profit Off

"All Japanese semiconductor operations were in the red" last year, said Kazua Kimbara, head of Hitachi's electronic devices group.

Hitachi's unconsolidated results showed a 39% profit drop from a year earlier. Toshiba's net income from its businesses in Japan plunged 56%.

The world's largest chip maker, NEC, will report its unconsolidated results this week; those, too, are expected to show a profit decline. And on Monday, Fujitsu posted a double-digit profit drop for the second consecutive year.

The reduction in chip-making employment may be as severe as it has been in the United States, where an estimated 30,000 to 40,000 chip workers lost their jobs during the past 20 months. With one major difference: Japan's companies are still retaining their "lifetime employment" guarantees, at least technically.

That means other parts of these companies must absorb workers displaced from semiconductor divisions that have sustained losses, cut back production and eased away from high-volume, commodity products that generate lots of manufacturing employment.

From now until late June, executives and directors of Japan's electronics giants will be engaged in wrenching, closed-door meetings with labor leaders, trying to find the least painful method of shedding employees.

At Hitachi, 2,000 to 3,000 chip workers are being shifted to computer operations, where sales have been increasing. NEC also has moved 3,000 employees from its semiconductor operations.

These announcements likely will spark further disclosures of cutbacks, said Osamu Ohtake, semiconductor analyst in Tokyo with market researcher Dataquest.

"It'll be like a domino effect," he said.

Fujitsu has moved an undisclosed number of workers out of chip making; the number of displaced semiconductor workers at companies like Matsushita, Toshiba and Oki Semiconductor is likely to increase, analysts believe.

In this respect, the electronics companies--the major drivers of Japan's boom economy in recent decades--are beginning to resemble some of the nation's "sunset" industries, such as steel, shipbuilding and chemicals.

Those businesses are struggling to maintain lifetime employment guarantees even as they slide into decline. Often they make room by encouraging longtime workers to take early retirement or by pushing workers into spinoff ventures that don't carry guarantees of employment with the parent company.

At electronics companies, meanwhile, part-time workers have been cut from the payrolls, retiring workers are not replaced and fewer college graduates are being hired.

Although most electronics companies insist they are maintaining their lifetime employment policies--the transfers are euphemistically called "employment adjustments"--they admit it may not be possible to do so forever.

"Japan must take it for granted that a certain amount of unemployment will continue, and that the lifetime employment (policy) must undergo significant change," said an official of one of the government agencies designed to help transfer workers from declining industries.

Philosophy May Change

Such an admission comes hard in Japanese culture, where layoffs by companies and mid-career changes by employees until recently have been nearly unthinkable.

Although re-evaluation of lifetime employment policies has become a national, though low-key, debate, it still is dangerous for a company to admit openly that it is reducing its employment in any way.

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