Toshiba 2012 Annual Report Download - page 82

12 TOSHIBA Annual Report 2012
Management's Discussion and Analysis
2. Risks related to financial condition, results of operations and cash flow
(1) Business environment of the Digital Products business
The market for the Digital Products business is intensely competitive, with many companies manufacturing and selling
products similar to those offered by the Group. Additionally, this business is significantly affected by exchange rate
fluctuations, economic fluctuations and consumer spending trends, and decreases in demand across the market may
cause declines in product prices. In times of rapid increases in demand, the Group's profit may be reduced due to the
need to purchase costly parts and components, and a shortage of these parts and components may hinder the Group's
ability to supply products to the market in a timely manner. The Group makes efforts to monitor the latest trends in
market demand in order to better respond to changes in supply and demand conditions, as well as to better manage its
production, procurement, sales and inventory. At the same time, the Group makes efforts to minimize risks and reduce
costs in connection with the procurement of parts and components by promoting package procurement measures
comprehensive procurement on a Group-wide basis. The Group also makes every effort to minimize the potential impact
of the market volatility by undertaking regional strategies (such as with respect to the emerging markets, including China,
that have relatively high economic growth rates) to promote business expansion. However, any rapid fluctuation in
demand may result in price erosion or increases in prices of parts and components, which may adversely affect the
Group's financial results with respect to this business.
The Visual Products business, including TVs, is under the influence of a decrease in sales volume in a larger amount
than expected after completion of the shift to digital terrestrial broadcasting in Japan and the drastic decline in sales
price. In response to these issues, the Group is addressing the reduced volume management, through the termination of
domestic production, expansion of outsourced production, reduction of model numbers and number of panels. Also, the
PC business is under the influence of the slowdown in demand centered around developed countries and competition
with other digital products.
However, because the growth in the emerging markets centered around Asia is supposed to remain strong, in addition
to continuous development of the local fit products based on consideration of characteristics of each region, centering
on the emerging markets, the Group plans to work on the sales of the high-value added products created by mobilized
technologies for visual products and PC, and in addition, the Group plans to work on commercialization of various
services including the digital book store called “BookPlace,” which was opened in April 2011, to aim at expansion of
domestic and international sales of both of hardware and services.
(2) Business environment of the Electronic Devices business
The market for the Electronic Devices business is highly cyclical, depending on demand, and intensely competitive, with
many companies, mainly in overseas markets, manufacturing and selling products similar to those offered by the Group.
The results of this business tend to change with economic fluctuations and, in particular, to be heavily affected by
exchange rate fluctuations. Unforeseen market changes and corresponding changes in demand at the time of production
may result in a mismatch between the Management's Discussion and Analysis production of particular products based on
the sales volume initially expected and the actual demand for such products, or cause the business to be adversely
affected by a decrease in product unit prices due to oversupply. In particular, the price for NAND flash memory, the
Group's major product in this business, may undergo rapid change, and System LSIs and other semiconductor products
also face uncertain future market trends, in spite of gradual recovery in the consumer market for digital products that use
semiconductors. The movement of the consumer market or semiconductor heavy users may influence demand for
semiconductors. Fluctuations in the results of this business may materially affect the Group's overall business
performance. In addition, the market may face a downturn, the Group may fail to market new products in a timely
manner, production may not go as planned, or a rapid introduction of new technology may make the Group's current
products obsolete. Economies of scale with respect to the manufacture of the many products produced by this business
are significant and there is intense competition to develop and market new products. Therefore, significant levels of
capital expenditures are required to maintain and improve competitiveness in both the price and quality of products.
The Group makes every effort to implement the business by focusing its attention on these factors and promoting
strategic allocation of resources. At the same time, the Group makes every effort to increase profits by enhancing cost
competitiveness, which is to be achieved by maintaining a technological advantage, and expanding the product line-up.
Additionally, the Group undertakes rigorous selection in its investments and makes every effort to carefully monitor the
latest market trends and to make capital investments in a timely manner, while thoroughly controlling flexible production
that corresponds to fluctuations in market demand, adjustment of supplies and investment management. The Group
promotes procurement of components from overseas in US dollars in order to mitigate the impact of exchange rate
fluctuations.
Also, while Discrete and System LSI businesses are under the influence of a decline in demand, in order to improve the
profitability and enhance the constitution of the business, the Group is promoting business structure reform, such as
restructuring and sales of manufacturing facilities, narrowing product type, becoming specialized in design by expansion
of outsourced production (fabless policy) and the effort to enlarge the size of disc in pre-process of semiconductor
production.