Over the course of its 145-year history, Toshiba Corp. has become a household name in Japan, with the firm often seen as representing the country along with other famed electronics giants such as Sony Group Corp. and Panasonic Corp.
But Toshiba’s reputation has taken a significant hit in recent years due to a series of scandals, and the company now seems to represent the shortcomings of Japan’s corporate culture — weak governance, conflict with foreign investors and a lack of strong leaders.
The Tokyo-based industrial conglomerate saw further damage to its brand in June after it was found to have colluded with the government to influence foreign investors’ voting behavior at an annual shareholders meeting.
In the wake of its various troubles, Toshiba has had to sell off and withdraw from a number of businesses, such as memory chips, overseas nuclear construction and medical equipment, to keep itself afloat. Compared with their peak of over ¥7.6 trillion recorded in fiscal 2007, sales had shrunk to less than half of that figure, to ¥3.1 trillion, by fiscal 2020.
This naturally raises some questions: Can Toshiba get out of the mess and thrive again? What businesses does it have to grow?
Experts say that Toshiba can return to growth, as it still has some businesses and technologies that boast a competitive edge. But it won’t be at the blistering pace many investors are hoping for, and it will likely take several years or more to bear fruit, so the firm needs to convince them with a more detailed blueprint for growth.
“Many people probably think that Toshiba’s business portfolio doesn’t look as good as Hitachi’s, NEC’s or Fujitsu’s because it’s been hollowed out after losing its memory chip and nuclear businesses,” said Hideki Wakabayashi, a professor at Tokyo University of Science and formerly an analyst covering the electronics industry.
“They may believe that Toshiba won’t have chances to grow anymore … but the company has got some businesses with growth potential.”
According to Toshiba’s midterm vision, dubbed the Toshiba Next Plan, the main pillar for growth is infrastructure services, while the firm also intends to ride the decarbonization and digital transformation waves. Considering what’s left of the firm, experts say Toshiba is steering in the right direction.
This will primarily beachieved by pushing forward with infrastructure services, which include products to improve field operations for factory and plant operators through digitalization, while seeking opportunities for mergers and acquisitions.
Toshiba has a huge existing customer base of infrastructure-related companies, so the strategy is on the right course, said Yoshiharu Izumi, senior analyst at SBI Securities, adding that Toshiba has an array of talent and technology at its disposal.
It may not be plain sailing, though, with rivals such as Hitachi Ltd. also providing similar infrastructure services by taking advantage of big data.
Hitachi provides a data analytics platform called Lumada to clients in a variety of industries to help them improve their operations. The platform has become a growth driver for Hitachi in recent years.
Wakabayashi said Toshiba also needs to come up with a similar unified data analytics platform, as momentum toward digital transformation is only expected to grow.
In addition, Toshiba is looking to shore up its renewable energy business. The firm says Japan is estimated to see ¥50 trillion to ¥80 trillion in investment in renewables over the next 10 years, fueled by the country’s pledge to achieve carbon neutrality by 2050.
Ranging from power generation to distribution and storage, Toshiba already has various renewables-related technologies and businesses, some of which are dominant in the domestic market.
For instance, Toshiba is a leading player in mega-solar installation and is also developing perovskite solar cells, a next-generation solar power technology. These cells are bendable and as thin as a layer of film, so it is possible to install them in places where traditional solar panels are not suitable.
“If they can develop and put perovskite solar cells into practical use, they have quite a lot of potential,” said Izumi. “Toshiba can utilize its basic material and chip technologies, too, so I think it’s worth pursuing.”
The company is also a leading player in hydropower generation equipment and power grid systems. It plans to increase its sales from renewable energy-related businesses to ¥650 billion by fiscal 2030, compared with ¥190 billion in fiscal 2019.
And Toshiba is also developing technologies, such as quantum cryptography and cancer blood testing, that could turn into huge businesses in the future. Considering the potential of those businesses, it can prosper again, experts say.
But a number of businesses, such as renewables, will take several years to bear fruit, and possibly even longer. That can be frustrating for shareholders who want returns in a shorter period of time.
Toshiba is planning to unveil its new midterm business plan in October, and it will be crucial that the firm presents a strategy that convinces shareholders.
“Toshiba did not propose such a scenario when Kurumatani was in charge — it was a critical mistake,” Wakabayashi said of former CEO Nobuaki Kurumatani, who stepped down in April.
As part of its turnaround process, Toshiba decided to withdraw from some money-losing businesses, such as system LSI chips, liquefied natural gas from the U.S. and the construction of nuclear plants overseas.
The restructuring resulted in about 10,000 jobs being cut between fiscal 2018 and fiscal 2020, and operational costs were streamlined.
Toshiba had actually started cutting jobs after its 2015 accounting scandal, and it has seen tens of thousands of employees leave. In March 2016, the firm had about 190,000 workers, but the number stood at 117,300 in March.
Wakabayashi said that while the restructuring enhanced profitability, the job cuts may have gone too far, saying that losing engineers could weaken Toshiba’s technological capabilities — a key competitive advantage. He added that as the firm is still in the middle of a tumultuous period, more engineers may leave Toshiba.
“I believe employees are the value of the company,” said Wakabayashi. “The value that engineers produce is what makes Toshiba’s technology, so it’s critical that they manage to keep the engineers.”
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