Negative newsflow continues to emanate from the Japanese telecoms, media and technology sector. ...
Negative newsflow continues to emanate from the Japanese telecoms, media and technology sector.
The sustained tail off in demand and subsequent profits warnings have led to some corporate restructuring within technology and telecom companies, but more will necessarily follow, says Stuart Dickson, Japanese investment manager at Britannic Asset Management.
He says: 'There have been a number of restructuring announcements, but we do not think that the restructuring has gone far enough yet.'
While the macro picture is hurting companies throughout most sectors, the technology sector continues to struggle with structural problems as well.
Overcapacity and the absence of any strong new drivers in the mobile phone and PC universes is inhibiting demand, says Dickson. 'On the demand side, we are waiting for replacement cycles in PCs and mobiles to take off. There is no real demand yet.'
Consequently, semiconductor stocks have been among the worst hit, where demand has fallen by some 50% year on year, he adds.
Denis Clough, manager of the Schroder Tokyo fund, is also underweight electronics hardware, but has bought a couple of stocks in the sector, taking a contrarian view.
He says: 'I have a long-term confidence in Rohm and Muata. Both have a very high market share and a long track record of being very profitable.'
Clough believes the order flow to these two specialist semiconductor companies could post positive growth within 12 months.
The sub-sector could also be boosted in the short to medium term when the current price war starts to gain momentum, Dickson notes. Infineon in Europe and Hyundai, propped up by the Korean government, are both producing at below cost, placing further strain on Japanese semiconductor stocks, he says.
'People are producing chips at massive losses but only operating at 50% to 60% of capacity utilisation,' he adds.
The consumer electronics sector is also suffering from the macro fallout, Clough says. Large caps such as Hitachi and Sony have suffered more than their small-cap counterparts, he adds, largely because small caps have been beaten down so far. A number of them are barely trading above their book value.
Besides the macro factors, a lack of new product drivers is also hitting the sector, Dickson says. Sony's PlayStation 2 is selling well, he notes, but this has not prevented the stock slipping by 46.03% over the calendar year to 9 October. The one area within the Japanese tech sector that Dickson is bullish about is the precision instrument sector.
Companies like Canon, which produce photocopiers and printers are still earning strong revenues from servicing contracts and ongoing ink cartridge sales, revenue streams virtually immune from the economic downturn.
Olympus is another stock in this area Dickson likes. Although better known for its camera equipment, Olympus also has an 80% share of the world endoscope market, he adds.
While telecoms have underperformed over the year to date, dragged down by the global sector malaise, they have bounced back over the recent weeks and look to be on attractive valuations, Dickson says.
Precision instrument sector outperforming
Telecoms companies on attractive valutions
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Semiconductor demand down down 50% yoy
New PC and mobile phone demand weak
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