* Hitachi Q1 op prof at Y63.6 bln vs. consensus Y59.5 bln
* Keeps annual op prof forecast at Y480 bln
* Hitachi: Construction equipment sales in China fell 40 pct
* China construction equipment orders to improve past
By Mari Saito
TOKYO, July 30 Hitachi Ltd, Japan's
largest industrial electronics maker, posted a
better-than-expected quarterly profit due to strong sales in its
power and automotive systems business, but warned of possible
turbulence from the slowdown in China.
The sprawling conglomerate, whose products range from
excavators to thermal power plants, posted an operating profit
of 63.6 billion yen ($808.85 million) in the April-to-June
quarter, up from 52.4 billion yen a year earlier.
The result topped the average forecast of 59.5 billion yen
by four analysts polled by Thomson Reuters I/B/E/S.
An economic slowdown in China is taking a toll on a growing
number of companies, with a series of profit warnings
highlighting how weakness in the world's second-largest economy
is hitting earnings. Construction equipment sales in China
slumped more than 40 percent in the first quarter, Hitachi said.
"We think it will take until at least January for demand to
recover in China's construction equipment market. This is not
just the case for our Hitachi Construction Machinery,
but also for Komatsu Ltd and Caterpillar,"
Hitachi Executive Vice President Toyoaki Nakamura told reporters
after the company's earnings announcement.
Analysts estimate that China will account for 10 percent of
Hitachi's overall sales this business year and Europe 8 percent.
Hitachi kept its annual forecast for a 480 billion-yen
operating profit for the year ending March, below the average
estimate of 500.6 billion yen in a poll of 22 analysts surveyed
by Thomson Reuters I/B/E/S.
China's central bank cut its policy rates in June for the
first time since the global financial crisis as data for April
and May suggested growth was weakening more than previously
thought. The country is due for a once-in-a-decade change in its
top political leadership in late 2012.
"We were expecting some improvement beginning in the fall as
the new political leadership (in China) puts in place more
economic policies...but the scope of China's market has grown
and what has worked before may not be the case again," Nakamura
NEW GROWTH AREAS
In a bid to avoid the fate of other electronics makers in
Japan, Hitachi has scaled back its unprofitable consumer
electronics division and shifted its focus towards growth areas
such as infrastructure, including rail systems and urban
Hitachi's automotive division, which makes engine and
control systems for cars, has benefited from growing vehicle
demand in emerging economies. The division posted an operating
profit of 9.3 billion yen in the quarter, more than tripling
from a year earlier.
The power systems division, which together with the auto
segment made up 20 percent of overall sales, posted a profit of
2.4 billion yen compared with a loss of 3.2 billion yen a year
The company plans to stop producing its own TV sets later
this year after merging its loss-making small-panel display
operations with those of Sony Corp and Toshiba Corp
Hitachi said last week that it won a 4.5 billion-pound
($7-billion) contract to build intercity trains in Britain,
despite the debt crisis in Europe.
The company has also invested in new segments such as cloud
computing and social infrastructure systems.
Still, Hitachi's operating margin was just above 4 percent
in the previous year, lagging behind global counterparts such as
General Electric Co and Siemens AG whose
margins were around 14 and 10 percent respectively, Thomson
Reuters data shows.
Hitachi has vowed to more than double its margins through
aggressive cost-cutting in all of its 900 subsidiaries and
moving its focus to high-profit global infrastructure orders.
The company logged a record net profit of 347.2 billion yen
in the previous year, boosted by the sale of its hard drive
business to Western Digital Corp.
Hitachi's main domestic rivals Toshiba and Mitsubishi
Electric are due to announce their quarterly earnings
on Tuesday. Panasonic Corp also reports on the same
Shares of Hitachi ended up 0.4 percent at 456 yen before its
results. Tokyo's benchmark Nikkei traded 0.8 percent