Toshiba 2011 Annual Report Download - page 78

12
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 memories, the Group’s major product in this business, may undergo rapid change, while such price had been
stable during FY2010, 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 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, 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.
In response to the severe business environment in the System LSI business, the Group accelerates the Fabless policy by
transfer of semiconductor manufacturing facilities which were used by Nagasaki Semiconductor Manufacturing Inc. and
aims to improve its profitability through the expansion of manufacturing outsourcing. Also the Group has reorganized the
System LSI business by dividing it into (i) the Logic LSI Business Department, which focuses on high-end System on Chip
(SoC), and (ii) the Analog-Imaging IC Department, which focuses on general purpose discrete semiconductors.
In addition, Toshiba Mobile Display Co., Ltd. (“Toshiba Mobile Display”), which engages in the LCD business, remains in
a situation in which its liabilities exceed its assets, and operates in a tight business environment in which it must deal with
shifting exchange rates and price declines. The Group has been implementing business structure reformation programs, with
a primary emphasis on LCD displays for mobile equipment that requires leading-edge technologies, and Toshiba Mobile
Display achieved operating income and recorded net income in FY2010.
(3) Business environment of the Social Infrastructure business
A significant portion of net sales in the Social Infrastructure business is attributable to national and local government
expenditures on public works and to capital expenditures by the private sector. The Group monitors trends in such capital
expenditures in conducting its business and also makes best efforts to cultivate new business and customers. However,
reductions and delays in spending on public works, low levels of private capital expenditures due to economic recession, and
exchange rate fluctuations may have a negative impact on this business.
Furthermore, this business involves the supply of products and services for large-scale projects on a worldwide basis. Post-
order changes in the specifications or other terms, delays, appreciation of material costs, changes to and stoppages of plans for
various reasons, including policy changes, natural and other disasters and other factors, may adversely and substantially affect
the progress of such projects. In addition, when the percentage of completion method is applied to revenue recognition for long
term construction contracts, the Group may reassess profits previously recorded as accrued and record them as a loss, in the
event that the expected profits from such projects do not meet original expectations or projects are delayed or cancelled for
some reason. Furthermore, it may not be possible to pass on to the customer or others any additional costs incurred due to
delays in the work process, and such costs may not be collected. In order to deal with such cases, the Group makes every effort
to grasp trends in markets and projects and to ensure thorough risk management before and after accepting orders. In addition,
whenever possible, the Group makes every effort to appropriately avoid risk by making agreements with customers for advance
payment or performance payments, as well as other agreements on supplemental payments in the event of changes in
specifications and delays in work. Although difficulties may arise for the continuance of certain currently ongoing projects due
to a change in the policies of fund providers and other factors, the Group is making every effort to obtain other fund providers
for such pending projects.
With respect to the nuclear power business, since the incident that occurred at the Fukushima Nuclear Power Plant, there is
a possibility that, to some extent, the project plans and orders obtained by the Group may be reconsidered. With respect to the
existing power plants, we will implement emergency safety measures for the purpose of resuming operations and respond with
permanent improvements in accordance with safety standards to be revised based on the analysis of the incident above.
Further, the Group plans to develop a next-generation nuclear power reactor with higher safety standards. With respect to the
new construction of power plants, it is necessary to incorporate revised future safety standards, and the Group will determine
its future development while confirming the status of customers in various countries and regions.