Japan Inc profits under siege from China slowdown

YASKAWA Electric

18/01/2019 11:03

* Nidec downgrade is latest sign of China shock
    * Japan is vulnerable because of high exports to China
    * China's woes threaten Japan's economic growth

    By Stanley White and Yoshiyasu Shida
    TOKYO, Jan 18 (Reuters) - Two prominent Japanese electronics
and equipment makers warned of profit declines over the past
week due to the impact of the U.S.-Sino trade war, stoking
worries of widespread cuts to corporate earnings forecasts and a
hit to economic growth. 
    Nidec Corp  6594.T , whose tiny motors are found in phones,
PCs, cars, and robots, slashed its annual operating profit
outlook by a quarter on Thursday, saying the trade war and a
slump in smartphone demand is discouraging manufacturers in
China from spending.  urn:newsml:reuters.com:*:nL3N1ZH28L
    And Yaskawa Electric Corp  6506.T , maker of robots used in
factory automation, also lowered its annual operating profit
outlook for the second time in three months on Jan. 10 because
of the trade war.
    Japan sends around a quarter of its electronics and heavy
machinery exports to China, so it is heavily exposed to the
current bout of weakening demand in the world's second-largest
economy.
    And because companies quickly cut employee bonuses and
capital expenditure when sales fall and inventories start piling
up, the potential blow to Japan's growth is significant, 
economists say.
    "I suspect a lot of economists will downgrade Japan's growth
forecasts for the first quarter of this year, because downside
risks have clearly increased," said Norio Miyagawa, senior
economist at Mizuho Securities.
    "Electronics and capital goods drive Japan's manufacturing,
but China is slowing, and we cannot be optimistic."
    Washington's attempt to lower the U.S. trade deficit has
triggered tit-for-tat tariff hikes with Beijing that has put
business leaders and policymakers on edge. 
    China's economy is taking a big hit as exports slow, factory
activity drops off, and consumers' demand for the latest tech
gadgets evaporates.  urn:newsml:reuters.com:*:nL3N1Z72RG
    China's woes are now rippling across the globe, triggering
warnings on sales or profits from Apple Inc  AAPL.O  to Samsung
Electronics  005630.KS  to Taiwan Semiconductor Manufacturing Co
 2330.TW .  urn:newsml:reuters.com:*:nL3N1Z236Y  urn:newsml:reuters.com:*:nL3N1Z92D7
    
    HIGH INVENTORIES
    Nidec's output of parts for autos and home appliance
manufacturers in China tumbled by 30-40 percent in November and
December as these customers adjust for high inventories, which
could last for another six months, said Nidec chief executive
Shigenobu Nagamori who founded the company in 1973.
    "In my long management career I have never seen a downturn
like we've seen in November and particularly in December,"
Nagamori said. But he ruled out changing business plans for now.
    There are many Japanese companies who make goods for similar
customers and are now in the same position as Nidec. Around 37
percent of Japan's exports are made up of either electronic
parts or manufacturing equipment, which leaves it vulnerable to
fluctuations in global demand.
    Japan's overall exports slowed to a crawl in November as
shipments to China weakened, finance ministry data showed.
During the same month machinery orders, a leading indicator of
capital expenditure, also stalled as manufacturers cut their
orders.  urn:newsml:reuters.com:*:nL3N1ZF21W
    Amid the weakening data, some Japanese electronics makers
remain optimistic that they can offset declining sales by
tapping demand for parts used in electronic vehicles and
self-driving cars.
    One example is parts maker Alps Electric Co  6770.T , which
derives around 60 percent of its revenue from its auto business.
    "We are a little worried about China," said Takashi Sogo,
group manager of public and investor relations at Alps Electric.
    "However, our products in the auto segment tend to go to
luxury cars, and we think this business will remain stable."    

 (Reporting by Stanley White and Yoshiyasu Shida; Editing by
Muralikumar Anantharaman)
 ((stanley.white@thomsonreuters.com; +81 3 6441 1984
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