J&J falls on sales warning; GE down on weak profit view
Microsoft to report quarterly earnings after market close
Indexes: Dow up 0.18%, S&P 500 off 0.13%, Nasdaq down 0.25%
NEW YORK, Jan 24 (Reuters) – Wall Street was mixed on Tuesday as a raft of mixed earnings took some wind out of the sails of the recent rally.
The session got off to an rocky start, as a spate of NYSE-listed stocks were halted at the opening bell due to an apparent technical glitch, which caused initial price confusion and prompted an investigation by the U.S. Securities and Exchange Commission (SEC).
More than 80 stocks were affected by the glitch, which caused wide swings in opening prices in stocks, including Walmart Inc (WMT.N) and Nike Inc (NKE.N).
“It looks like NYSE got on it real early,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “Now they’re trying to determine what opening trade prices were.”
“Everyone involved in trade settlements is going to have a long day today.”
All three indexes sputtered near the starting line, with little apparent momentum in either direction.
Fourth quarter earnings season is in full swing, with 72 of the companies in the S&P 500 having reported. Of those, 65% have beaten consensus, just a hair below the 66% long-term average, according to Refinitiv.
On aggregate, analysts now expect S&P 500 earnings 2.9% below the year-ago quarter, down from the 1.6% year-on-year decline seen on Jan. 1, per Refinitiv.
“Earnings don’t make a bull or bear case for the market yet, but there’s an anxiousness among investors to be long when the Fed is done raising rates,” Sroka added. “We’re hitting a ramp in the earnings cycle, and by next week we’ll have a lot more information on the direction of the market.”
Economic data showed shallower-than-expected contraction in the manufacturing and services sector in the first weeks of the year, suggesting that the Federal Reserve’s restrictive interest rates are dampening demand.
The Dow Jones Industrial Average (.DJI) rose 60.69 points, or 0.18%, to 33,690.25, the S&P 500 (.SPX) lost 5.36 points, or 0.13%, to 4,014.45 and the Nasdaq Composite (.IXIC) dropped 28.39 points, or 0.25%, to 11,336.03.
Among the 11 major sectors of the S&P 500, industrials was down the most.
Intercontinental Exchange Inc (ICE.N), owner of the New York Stock Exchange, dropped 2.5% as SEC investigators searched for the cause of Tuesday’s opening bell confusion.
Alphabet Inc (GOOGL.O) shares dipped 1.8% after the Justice Department filed a lawsuit against Google for abusing its dominance of the digital advertising business.
Johnson & Johnson’s (JNJ.N) profit guidance came in above analyst expectations. Even so, its stock softened 0.3%.
Industrial conglomerates 3M Co (MMM.N) and General Electric Co (GE.N) both provided underwhelming forward guidance due to inflationary headwinds.
3M’s shares were off 5.1% while General Electric’s were modestly lower.
Aerospace/defense companies Lockheed Martin Corp (LMT.N) and Raytheon Technologies Corp (RTX.N) were a study in contrasts, with the former issuing a disappointing profit forecast and the latter beating estimates on solid travel demand.
Lockheed Martin and Raytheon were up 1.5% and 2.5%, respectively.
Railroad operator Union Pacific Corp missed profit estimates as labor shortages and severe weather delayed shipments. Its shares shed 2.7%.
Microsoft Corp (MSFT.O) is due to report after the bell.
Advancing issues outnumbered declining ones on the NYSE by a 1.16-to-1 ratio; on Nasdaq, a 1.06-to-1 ratio favored decliners.
The S&P 500 posted 27 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 69 new highs and 21 new lows.
Reporting by Stephen Culp; Additional reporting by Shreyashi Sanyal and Johann M Cherian in Bengaluru; Editing by Aurora Ellis
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To be replaced on Oct. 15 by Connected Care head Jakobs
Shares up 2%, but down more than 50% since product recall
AMSTERDAM, Aug 16 (Reuters) – Philips (PHG.AS) Chief Executive Frans van Houten will leave the company in October, the Dutch health technology firm said on Tuesday, after a key product recall cut its market value by more than half over the past year.
Philips said Van Houten would be replaced on Oct. 15 by Roy Jakobs, head of the company’s Connected Care businesses. Van Houten’s third term as CEO had been due to end in April.
Jakobs, 48, is currently overseeing the company’s recall of millions of ventilators and machines for the treatment of sleep apnea. That process has lopped almost $30 billion off Philips’ value as investors fear large claims.
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“The time is right for the change in leadership,” Philips said in a statement.
Philips shares were up 2% in afternoon trading, but are still down almost 60% since its warning in June 2021 that foam used for sound dampening might release toxic gases that could carry cancer risks. read more
When it started the recall in September last year, Philips said it expected to complete the replacement and repair of all affected machines within a year.
But after broadening the scope of the operation to around 5.5 million devices worldwide, Philips in June said the work was only around halfway done.
ADDITIONAL TESTS
The U.S. Food and Drug Administration (FDA) in January classified the recall as Class 1, or the most serious type, posing a threat of injury or death.
The FDA said on Tuesday it had received 48,000 new Medical Device Reports containing complaints about potential injuries related to the Philips devices, including 44 deaths, between May 1 and July 31 this year. read more
That is more than twice as many reports as it received for the entire year to April 30, 2022, which totalled over 21,000. They included 124 deaths.
CEO Frans van Houten from the Dutch health technology company Philips presents the company’s financial results for the fourth quarter and full year 2018, in Amsterdam, Netherlands, January 29, 2019. REUTERS/Eva Plevier
The FDA said it would analyse the reports and examine the possible reasons for the increased number.
The complaints do not prove causality, but are an indicator of the severity of the problem.
Philips in June said it had supplied the FDA with evidence from independent tests on the recalled devices which showed foam degradation was mainly linked to the use of aggressive, unauthorised ozone-based cleaning products. read more
It has promised to run additional tests to determine the potential toxicity of degraded foam parts, even though the tests so far had shown that the parts did not leave the machine.
Philips estimated the costs of the recall at 900 million euros ($915 million). That sum does not cover the possible costs of litigation. The company is facing more than a hundred class action suits.
“If you have three recalls in 10 years, it’s too much. His (Van Houten’s) position had become untenable,” said analyst Jos Versteeg of InsingerGilissen. He was referring to a defibrillator recall in 2017 and problems with medical scanners in 2014.
“This situation is not really under control, I think, because we’re still waiting for the definite conclusion of the (safety) studies.”
Although the blow to Philips’ reputation could have led it to pick an outsider for the top job, supervisory board chairman Feike Sijbesma said Jakobs was the right man to fix the company’s problems.
“He led the ramp up of production following the recall and knows very much about patient safety and product quality, so also from that perspective he is the right person,” he said.
During his almost 12 years at the helm, 62-year old Van Houten oversaw the disposal of Philips’ lighting and consumer electronics divisions.
Philips now focuses on medical imaging, monitoring and diagnostic equipment and competes against General Electric (GE.N) and Siemens Healthineers (SHLG.DE).
($1 = 0.9833 euros)
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Reporting by Bart Meijer; Additional reporting by Ahmed Aboulenein in Washington; Editing by Matt Scuffham, Emelia Sithole-Matarise and Richard Pullin
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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., July 21, 2022. REUTERS/Brendan McDermid
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Walmart cuts profit forecast; news hits retailers
McDonald’s up as sales, profit top estimates
Coca-Cola up on forecast raise
Indexes down: Dow 0.8%, S&P 500 1.3%, Nasdaq 2%
NEW YORK, July 26 (Reuters) – U.S. stocks were sharply lower on Tuesday afternoon, with Nasdaq down more than 2%, as a profit warning by Walmart dragged down retail shares and fueled fears about consumer spending.
Walmart (WMT.N) shares fell 8% after the retailer cut its full-year profit forecast late on Monday. Walmart blamed surging prices for food and fuel, and said it needed to cut prices to pare inventories. read more
Shares of Target Corp (TGT.N) declined 3.8% and Amazon.com Inc (AMZN.O) dropped 5.1%. read more
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Also, Amazon said it would raise fees for delivery and streaming service Prime in Europe by up to 43% a year. read more
Amazon was among the biggest drags on the Nasdaq and S&P 500, while consumer discretionary (.SPLRCD) fell more than 3% and led declines among S&P 500 sectors.
“The majority of companies that reported today beat earnings, and that’s been the case. But of course there have been some warnings, and that’s what the market is focusing on,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.
“Walmart basically pulled the plug, and most retailers are lower across the board.”
Meanwhile, Coca-Cola Co (KO.N) gained 1.9% after the company raised its full-year revenue forecast. McDonald’s Corp (MCD.N) rose 3% after beating quarterly expectations. read more
A busy week for earnings includes reports from Alphabet Inc (GOOGL.O) and Microsoft Corp (MSFT.O) after the bell. Microsoft was down 3.4% and Alphabet was down 2.9%.
The Dow Jones Industrial Average (.DJI) fell 239.66 points, or 0.75%, to 31,750.38, the S&P 500 (.SPX) lost 52.28 points, or 1.32%, to 3,914.56 and the Nasdaq Composite (.IXIC) dropped 239.38 points, or 2.03%, to 11,543.29.
The Federal Reserve started a two-day meeting and on Wednesday, it is expected to announce a 0.75 percentage point interest rate hike to fight inflation. read more Investors have worried that aggressive interest rate hikes by the Fed could tip the economy into recession.
Earnings from S&P 500 companies are expected to have risen 6.2% for the second quarter from the year-ago period, according to Refinitiv data.
Among the week’s heavy slate of economic news, data Tuesday showed U.S. consumer confidence dropped to nearly a 1-1/2-year low in July, pointing to slower economic growth at the start of the third quarter. read more
Advance second-quarter GDP data on Thursday is likely to be negative after the U.S. economy contracted in the first three months of the year.
Declining issues outnumbered advancing ones on the NYSE by a 1.82-to-1 ratio; on Nasdaq, a 1.51-to-1 ratio favored decliners.
The S&P 500 posted 1 new 52-week highs and 30 new lows; the Nasdaq Composite recorded 32 new highs and 123 new lows.
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Additional reporting by Shreyashi Sanyal and Aniruddha Ghosh in Bengaluru; Editing by Arun Koyyur, Anil D’Silva and David Gregorio
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DETROIT/BEIJING, March 25 (Reuters) – A year ago Tesla dismissed the alternative path of electric car battery swapping as “riddled with problems and not suitable for widescale use”. It seems Beijing disagrees.
In fact, China is pushing hard for swappable batteries for electric vehicles (EVs) as a supplement to regular vehicle charging, with the government throwing its weight behind several companies advancing the technology.
Four companies – automakers Nio and Geely, battery swap developer Aulton and state-owned oil producer Sinopec (600028.SS) – say they plan to establish a total of 24,000 swap stations across the country by 2025, up from about 1,400 today.
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Battery swapping allows drivers to replace depleted packs quickly with fully charged ones, rather than plugging the vehicle into a charging point. Swapping could help mitigate the growing strains placed on power grids as millions of drivers juice up, yet specialists caution it can only take off in a big way if batteries become standardized industry-wide.
If China is successful in making swapping successful on a large scale, though, the shift could undermine the business models of global brands like Tesla, Volkswagen and General Motors, whose EVs are designed for and powered by their own proprietary batteries and, in Tesla’s case, its own charging network.
Even slight changes of fortune in the country can have significant consequences for these carmakers, whose futures rely on achieving success in the world’s largest car market.
The Chinese swapping plans, announced piecemeal in recent weeks and months but not widely known outside the domestic auto sector, are part of Beijing’s broader plan to make 25% of car sales fully electric by 2025, or more than 6 million passenger vehicles based on current forecasts. Estimates vary widely as to how many will have swappable batteries.
The Ministry of Industry and Information (MIIT), a major supporter of battery swapping, did not immediately respond to a request for further comment about China’s battery swapping strategy
Furthermore, big Chinese players are also looking overseas.
Ningde-based CATL (Contemporary Amperex Technology Company Ltd) (300750.SZ), the world’s biggest battery maker, told Reuters it was developing swapping services not only for China, but “to meet the demand of global markets”.
“We are accumulating experience in the Chinese market and at the same time communicating closely with overseas partners. You’ll receive more concrete information soon,” said CATL, which supplies about half of China’s market and more than 30% of the battery cells used in EVs globally.
Nio, among China’s top EV makers, plans to offer U.S. customers battery-swapping services by 2025, the company’s North American head Ganesh Iyer said. It has more than 800 swap stations in China and has just set up its first in Europe.
‘NEVER GOING TO HAPPEN’
Such plans clash with the views expressed by global EV pioneer and leader Tesla in March 2021 when it dismissed the viability of large-scale battery swapping in China. It trialed swapping in the United States years ago and abandoned it.
Industry executives are divided over whether China’s push can overcome the reluctance of European and U.S. automakers to abandon their own battery designs and adopt standardized ones.
“You’ll never ever get carmakers to agree to swappable batteries,” said Andy Palmer, former CEO of Aston Martin and currently head of EV maker Switch Mobility.
John Holland, wireless EV charging company Momentum Dynamics’ commercial director for Europe and the Middle East, said convergence on batteries created a quandary for automakers.
“Then how do you differentiate your product?”
Tesla (TSLA.O), GM (GM.N) and Volkswagen (VOWG_p.DE) say they are not exploring battery swapping right now.
A GM spokesperson told Reuters that swappable batteries “are not part of our strategy at present.”
A VW spokesperson said the company originally considered battery swapping to avoid waiting times at charging stations, but that advances in fast charging and the lower costs of non-swappable batteries had led it to shift focus to the latter.
“Nevertheless, our strategists closely monitor and evaluate the competitive environment and all developments in this area,” the German carmaker said.
A Tesla spokesperson didn’t immediately respond to a request for comment.
Swapping and regular grid-charging both have critics and cheerleaders in a rapidly evolving auto tech arena.
The ease of exchanging batteries in e-scooters has been demonstrated in Asia and Europe, but the challenge is adapting the technology to larger and more complex cars, trucks and vans. See accompanying short story: read more
Concerns about the length of swapping times have also faded, with Nio saying it has automated the process so it takes as little as 90 seconds.
Yet the more familiar grid-charging side has a huge head start, and is bolstered by the fact there’s already billions of dollars’ worth of charging infrastructure built globally.
Automakers are also rolling out EVs with improved batteries that boast longer ranges and shorter charge times, which could make swapping obsolete.
‘BIGGEST GAME IN TOWN’
In China, MIIT released the global auto industry’s first standards for swapping technology last year. They went into effect in November, specifying safety requirements, test methods and inspection rules for EVs with swappable batteries.
The ministry aims to have more than 100,000 battery-swappable vehicles and more than 1,000 swap stations, in total, in 11 cities by 2023; stations in the bigger cities will accommodate both passenger and commercial vehicles, while outlying provincial cities will focus on electric heavy-duty trucks.
Yet a key uncertainty for China’s ambitions is whether enough carmakers adopt standardized batteries, an obstacle that scuttled attempts at battery swapping in the last decade – yet, if overcome, could propel the technology to a viable scale. Read a short history of swappable batteries: read more
There’s a long way to go. Even the swapping option offered to customers by Nio uses the company’s own batteries, thus limiting the service to people driving Nio cars equipped with the company’s proprietary batteries.
CATL, which helped Nio develop swappable batteries, has signed up China’s FAW Motor as the first customer for its new Evogo battery swapping service and expects to extend the service to other Chinese automakers.
CATL wants domestic firms to accept its standard battery design so its stations can service models from multiple brands, according to a person close to the company who declined to be named due to commercial sensitivities, adding that it expected more car brands to adopt its standardized designs.
The company is “the biggest game in town” for EV batteries, said Tu Le, managing director of Sino Auto Insights.
“They can offer a large footprint for swapping stations and a low cost to use those stations,” he said.
Meanwhile, among those Chinese companies building out swap station networks, Shanghai-based Aulton New Energy Automotive Technology has said it is working with automakers to develop standardized batteries, and with Sinopec to install stations at 30,000 Sinopec gas stations in China by 2030.
Aulton didn’t respond to a request for comment.
MAGIC IN AMERICA?
While international carmakers may resist swappable batteries, they are reliant on Chinese sales to fund their costly transition to electric and will have little choice but to adapt to the market there, according to many industry experts.
Furthermore, if Beijing ultimately mandates swappable batteries “and starts saying, ‘okay, the only car you’re allowed to produce is one that meets the standard’ . . . you would have to comply to stay in business” in China, says John Helveston, assistant professor at George Washington University’s School of Engineering.
Some advocates of swapping are looking beyond China.
Battery swapping “is too convenient, too economical and too logical for this not to happen at scale in Europe and the United States,” said Levi Tillemann, head of policy and international business at San Francisco-based battery swap startup Ample.
“It’s a sort of magical thinking to imagine that this is a uniquely Chinese phenomenon,” he added.
Ample, one of just a handful of battery swapping developers outside China, has raised $275 million from investors, including energy companies Shell, Repsol and Eneos, boosting its valuation to $1 billion.
It is running pilot programs with Uber (UBER.N) and car rental startup Sally, and says it is collaborating with several unnamed automakers.
“With a relatively small number of vehicles that are heavily utilized, we can deploy and operate a battery swap system profitably,” Tillemann said. “So fleets are a prime target for us.”
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Reporting by Paul Lienert in Detroit, Nick Carey in London and Norihiko Shirouzu in Beijing; Additional reporting by Victoria Valdersee in Berlin; Editing by Pravin Char
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A ground worker walking near a Qantas plane is seen from the international terminal at Sydney Airport, as countries react to the new coronavirus Omicron variant amid the coronavirus disease (COVID-19) pandemic, in Sydney, Australia, November 29, 2021. REUTERS/Loren Elliott
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Will buy 20 A321XLRs and 20 A220-300 jets
To replace ageing fleet of 737s and 717s
Selects Pratt & Whitney engines
SYDNEY, Dec 16 (Reuters) – Australia’s Qantas Airways Ltd (QAN.AX) said on Thursday it has chosen Airbus SE (AIR.PA) as the preferred supplier to replace its domestic fleet, switching away from Boeing Co (BA.N) in a major win for the European planemaker.
The airline said it had committed to buying 20 Airbus A321XLR planes and 20 A220-300 jets and had taken purchase options on another 94 aircraft, subject to board approval expected by June 2022.
Deliveries would start in mid-2023 and continue over the next 10 years to replace an ageing fleet of 75 Boeing 737s and 20 717s, Qantas said.
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“This is a clear sign of our confidence in the future and we’ve locked in pricing ahead of what is likely to be a big uptick in demand for next-generation narrowbody aircraft,” Qantas Chief Executive Alan Joyce said in a statement.
It caps a successful week for Airbus after Singapore Airlines on Wednesday agreed to launch the A350 freighter and the planemaker looks likely to seize a narrowbody order from KLM as early as Thursday, in what would be the second defection to Airbus in 24 hours. read more
The loss of the contract, first reported by Bloomberg News, is a blow to Boeing’s 737 MAX, interrupting a strong run of sales since the jet was cleared for flight late last year following a safety ban.
Qantas has operated Boeing jets since 1959 and was once the world’s only airline with an all 747 fleet. After the Airbus narrowbody win, the U.S. planemaker will now supply only its long-haul 787 Dreamliners.
“Although we are disappointed, we respect Qantas’ decision and look forward to continuing our long-standing partnership,” Boeing said in a statement.
Joyce said in October that Qantas expected to order more than 100 narrowbody and regional planes, with a preferred supplier to be chosen in December.
The airline’s low-cost arm Jetstar already has an order for more than 100 Airbus A320neo family planes that will be combined with the new deal to give Qantas more flexibility and the need for fewer firm commitments.
Qantas plans to order Pratt & Whitney (RTX.N) engines for the fresh batch of Airbus A320neo family planes, having bought rival CFM International engines from GE (GE.N) and Safran (SAF.PA) for the Jetstar order. Pratt will also supply the engines for the A220.
Vertical Research Partners analyst Rob Stallard said the Qantas deal was a sign that Airbus was more focused on building up its narrowbody backlog than raising prices even though it already has a higher market share than Boeing.
“From an Airbus perspective, this should also help convince sceptical suppliers of the business case for moving the A320 family (production) to 75 a month over time,” he said.
Qantas is separately looking at A350 widebodies capable of the world’s longest commercial flights from Sydney to London, with a decision expected next year.
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Reporting by Jamie Freed in Sydney, Tim Hepher in Paris and Eric M. Johnson in Seattle; Editing by Peter Cooney and Richard Pullin
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Smoke billows from a chimney at a coking factory in Hefei, Anhui province October 2, 2010. REUTERS/Stringer/File Photo
Coal miner stocks fall in China, elsewhere
Selling crimps long rally amid energy squeeze
Oil down, gas steady
China coal futures sink amid output surge
SYDNEY, Nov 15 (Reuters) – An international agreement to reduce coal use dragged miners’ shares lower on Monday, but tight supply of the commodity provided a floor for a sector that has chalked up huge gains this year.
U.N. climate talks in Glasgow ended on Saturday with a deal targeting fossil fuel use. Wording was softened to call for a “phase down” rather than “phase out” of coal after lobbying from India, among others.
Big miners China Shenhua Energy and Yanzhou Coal fell 1% and 2.4% respectively in Hong Kong, where the broader stock market (.HSI)edged up slightly. An index of mainland-listed miners (.CSI000820) fell about 1%. Coal stocks in other regions also came under pressure.
“Climate activists will undoubtedly frame COP26 as failing on coal (and fossil fuels). We look past this frustration (and current energy market conditions) and see ongoing incremental consensus in the need to reduce demand for fossil fuel,” said Cowen analyst John Miller. .
In Indonesia, the world’s biggest coal exporter, declines were exacerbated by surging production in China, a top customer. No. 1 miner Bumi Resources (BUMI.JK)fell 5.7%, while Adaro Energy (ADRO.JK) and Indika Energy (INDY.JK) tumbled 4.5% and 7% respectively.
Shares in Australia-listed thermal coal miner Whitehaven Coal (WHC.AX) fell about 1.6% and rival New Hope (NHC.AX) about 1% in a slightly firmer broad market.
‘CASH GENERATOR’
Metallurgical coal miners South32 (S32.AX) and Coronado Global Resources (CRN.AX) dropped some 1.4% and 4% respectively. The moves extend a recent pullback that has taken the edge off huge year-to-date gains for Whitehaven, South32 and New Hope amid a global energy crunch. They are each up more than 40%.
“The reality is that coal is going to be used during the next decade or so. It’s still going to be a cash generator,” said Mathan Somasundaram, chief executive officer at Sydney-based research firm Deep Data Analytics.
China, the world’s biggest producer and consumer of coal, churned out its highest tonnage in more than six years last month, official data showed, which helped to knock near-term spot prices , on Monday. read more
The Glasgow deal has elicited promises of future cuts to use, resolved rules for carbon markets and also takes aim at fossil fuel subsidies – all of which could speed up the transition to other energy sources. read more
Elsewhere in Asia, Seoul-listed mine owners and suppliers KEPCO (015760.KS), LX International (001120.KS) and Doosan Heavy (034020.KS)traded between a fall of 2.5% and a gain of 0.6% in a broader market that was up 1%. Thai miner Banpu (BANPU.BK) fell 2.7%. Shares in Coal India (COAL.NS) slid 4.3%, also weighed down by soft quarterly results. NTPC (NTPC.NS)edge up.
Among other mining stocks, Anglo American (AAL.L), the world’s third largest exporter of metallurgical coal, fell around 1% in London, while Sasol (SOLJ.J), which operates coal mines in South Africa, was steady.
George Boubouras, head of research at K2 Asset Management in Melbourne, said under-investment in coal projects would probably keep spot prices elevated from a historical perspective but the fuel’s likely eventual demise might limit gains for stocks.
“High thermal coal prices… will not necessarily translate into higher share prices to the same degree,” he said. Oil fell around 1% and gas a touch firmer in European hours and stocks in the sector were broadly steady.
Some investors see uranium filling some of the gap left as energy firms retreat from coal. This hashelped uranium futures to soar along with other commodities in recent weeks.
Large miners have rallied, lifting Canada’s Cameco (CCO.TO) to a decade high last week and Kazakhstan’s Kazatomprom (KZAP.KZ) to a record.
Reporting by Tom Westbrook; Additional reporting Joori Roh in Seoul, Muyu Xu in Beijing, Chandini Monnappa in Bengaluru and Melanie Burton in Melbourne and Danilo Masoni in Milan; Editing by Edwina Gibbs
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The logo of Toshiba Corp. is seen at the company’s facility in Kawasaki, Japan June 10, 2021. REUTERS/Kim Kyung-Hoon
TOKYO, Nov 12 (Reuters) – Japan’s Toshiba Corp (6502.T) outlined plans on Friday to break up into three independent companies by spinning off two core businesses – its energy and infrastructure business as well as its device and storage business.
After spinning off the two companies, Toshiba will continue to own its 40.6% stake in memory chipmaker Kioxia as well as other assets.
The plan – borne of a five-month strategic review undertaken after a highly damaging corporate governance scandal – is partly aimed at encouraging activist shareholders to exit, sources with knowledge of the matter have said.
Toshiba said in its statement on Friday it believed that splitting the company was the best path to enhancing shareholder value.
“The decision allows each business to significantly increase its focus and facilitate more agile decision-making and leaner cost structures,” the statement said.
Toshiba hopes to complete the reorganisation by the second half of the 2023 financial year.
It also said it intended to to “monetize” its shares in Kioxia, returning the net proceeds in full to shareholders as soon as practicable. But it did not elaborate on whether that meant it was still keen on an IPO or would be considering other options.
Some Toshiba investors are not convinced that a break-up would create value, shareholder sources said ahead of a formal announcement of the plan.
“It makes sense to split if the valuation of a highly competitive business is hindered by other businesses,” said Fumio Matsumoto, chief strategist at Okasan Securities.
“But if there isn’t such a business, the break-up just creates three lacklustre midsize companies.”
The once-storied 146-year old conglomerate has lurched from crisis to crisis since an accounting scandal in 2015. Two years later, it secured a $5.4 billion cash injection from 30-plus overseas investors that helped avoid a delisting but brought in activist shareholders including Elliott Management, Third Point and Farallon.
Tension between Toshiba management and overseas shareholders has dominated headlines since then and in June, an explosive shareholder-commissioned investigation concluded that Toshiba colluded with Japan’s trade ministry to block investors from gaining influence at last year’s shareholders meeting.
Earlier on Friday, Toshiba released a separately commissioned report that found executives including its former CEO had behaved unethically but not illegally.
It concluded that Toshiba was overly dependent on the trade ministry, adding that problems were also caused by its “excessive cautiousness towards foreign investment funds” and “its lack of willingness to develop a sound relationship with them.”
Shares in Toshiba finished 1% lower after the governance report. Details of the strategic review were announced after the market close.
Recovering from a slump due to the COVID-19 pandemic, Toshiba reported second-quarter operating profit roughly doubled to 30.4 billion yen ($266 million).
($1 = 114.2200 yen)
Reporting by Makiko Yamazaki; Editing by Edwina Gibbs
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