Toshiba is bracing itself for a torrid foreseeable future as it rues the consequences of a ¥152bn (£780m) accounting scandal after overstating profits for six years. CEO Hisao Tanaka predictably resigned and the government warned of investors' confidence in the entire country being shaken.
The company has now predicted its biggest ever annual loss – ¥550bn (£3bn, $4.5bn), as a result of costs incurred in cutting 10,600 jobs and streamlining its loss-making businesses. It will axe or relocate about 5% of its global workforce by the end of the financial year, including around 6,800 jobs in the personal computer and television consumer electronic businesses.
Regaining investor confidence from its restructuring measures is of course key, but the more concerning question that looms over the firm is how it will create growth after the scandal laid bare just how much most of its businesses were struggling. Ahead of the announcement, shares closed down 9.8% at ¥254.8, their lowest point in three years.
'By implementing this plan, we would like to regain the trust of all stakeholders including shareholders and transform ourselves into a robust business,’ Toshiba said in a statement. Good luck with that.
The overhaul will aim to streamline the conglomerate into a company focused on chips and nuclear energy, with its consumer electronics business suffering in a price battle with South Korean and Chinese rivals. Toshiba recently sold its image sensor business to Sony, stopped building TVs for the US market and cut its television manufacturing plant in Indonesia.
Of course, Toshiba isn't the only Japanese giant trying to turn around dwindling prospects. The likes of Sony, Panasonic and Hitachi also dropped consumer electronic businesses in efforts to focus on more lucrative opportunities like infrastructure and image sensors, but doubts remain as to whether Toshiba's remaining businesses – spanning flash memory, energy and infrastructure – will deliver strong growth.
The aftermath of the accounting scandal also flagged up problems that extended beyond the obvious business difficulties. An independent accounting investigation in July found that the company suffered from a difficult culture ‘where it was impossible to go against the boss’s will’. Some eight high-level execs may have resigned following that conclusion, but investors will need some convincing Toshiba has committed to changing what has been a very insular corporate culture.
If this wasn’t bad enough, the firm is looking around for a hand to help steady the ship – Toshiba is considering combining its PC operations with Fujitsu and Vaio, but may team up with Sharp in the appliance business. The latter of which has also faced a tricky few years due to increasing competition. Considering Sharp recently asked staff to shell out money on its products to help the firm ‘weather this extreme difficulty’, this prospective union may not have the strongest of foundations.