Toshiba, the world's seventh-largest microchip maker, said annual profit at its mainstay chip operations may substantially exceed its official forecast, raising expectations for earnings revisions later in the business year.
Toshiba is benefiting from growing demand for NAND-type flash memory, a storage device widely used in digital cameras, photo-snapping phones and portable music players such as Apple Computer Inc's hot-selling iPod nano.
Despite robust demand for NAND flash, rewriteable chips that do not require power to retain information, Toshiba kept unchanged its official operating profit target of 75 billion yen ($650.3 million) for the chip division.
"Chip operations staged a great improvement in the first half and we expect the same for the second. But we just cannot tell at the moment how much better it will get," Toshiba Corporate Senior Executive Vice President Sadazumi Ryu told reporters.
"But we think 90 billion yen or 100 billion yen could be within reach."
Another earnings contributor is its personal computer operations, whose quarterly losses sharply narrowed from a year earlier due to outsourcing to Taiwanese PC makers and by focusing on high-margin models with enhanced entertainment functions.
Toshiba is the world's third-largest notebook computer maker behind Dell Inc and Hewlett-Packard Co Group net profit came to 23.57 billion yen in the fiscal second quarter ended September 30, up from a 16.16 billion yen profit a year earlier. Sales rose 4.4 percent to 1.6 trillion yen.
In contrast, the lack of cash cow products like NAND flash caused fellow chip maker NEC Electronics Corp, 70 percent owned by NEC Corp, to swing to a loss in July-September and to forecast a deeper full-year deficit than expected.
Toshiba's results came as no surprise as it had revised up its interim earnings estimates a week ago, citing robust demand for NAND flash memory.
The company's shares have gained 3.1 percent since the revision, bucking a 0.8 percent fall in the Tokyo stock market's electric machinery index IELEC.
"Expectations had been low. Then came the revised earnings, which showed the company was not doing as poorly as feared. That's encouraging, and expectations are back," said Jun Nishizaki, chief portfolio manager at Nissay Asset Management.
Toshiba expects global NAND demand to more than double in the next three years to hit 2.15 trillion yen in the year to March 2009.
It held about 28 percent of the NAND flash market last year, second to Samsung Electronics Co Ltd's 59 percent, according to research firm iSuppli.
For the year to next March, Toshiba maintained its net profit forecast of 55 billion yen. That is up from a 46.04 billion yen profit a year earlier, but below the consensus of 62.06 billion yen in a poll of 17 analysts by Reuters Estimates.
Shortly after the announcement, shares in Toshiba closed down 1.68 percent at 527 yen, underperforming the electric machinery index, which was down 0.68 percent.
Toshiba is Japan's second-largest electronics conglomerate behind Hitachi Ltd, which is expected to post a sharp year-on-year decline in first-half earnings on Monday, dragged lower by its loss-making hard disk drive operations.