Toshiba Corp
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Toshiba Corp
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Good afternoon, ladies and gentlemen. It is now time to start the briefing for fiscal 2019 first quarter consolidated business results of Toshiba Corporation. First, the participants: Mr. Masayoshi Hirata, Representative Executive Officer and Corporate Executive Vice President; Mr. Yasuhiro Matsunaga, Group Manager of Accounting Division. My name is [ Kimura ] from the PR and IR Office of Corporate Communications Division. First, the presentation by Masayoshi Hirata.
Good afternoon. Thank you very much for coming despite very warm weather outside. Thank you indeed. Without further ado, I would like to present the first quarter consolidated business results for fiscal 2019.
First, as always, I have to remind you of the following: the last bullet point on this slide regarding Toshiba Memory for the first quarter results, we are incorporating that. However, as for the future forecast, we are not receiving any information from Toshiba Memory, and therefore we cannot speak on their behalf. We cannot answer your questions regarding Toshiba Memory.
Please turn to Slide 5. Here, you can see the outline of the financial results. As you can see at the heading for the first quarter, the key topics are: thanks to the restructuring and procurement reforms, which are beginning to bear fruit, the operating profit increased year-on-year and provisions, accounting-wise, have been recorded -- the loss provisions in relation to the LNG agreement, the transfer of that business. And we also recorded quite a substantial amount of the equity -- changes in the equity in Toshiba Memory.
As for sales, as you can see, the sales increased for Infrastructure Systems & Solutions, Building Solutions and Digital Solutions, but sales decreased for Energy Systems & Solutions and Electronic Devices and Storage Solutions. And as you are aware, we sold PC business last year. And last year, JPY 43 billion of sales from that business is incorporated, but with the absence of that business, there was a decline this year, year-on-year. For your information, excluding the impact of this transfer of PC business, we actually saw an increase in sales based on existing business by JPY 13 billion or so or 1.6% year-on-year.
In terms of operating income and loss, the total was JPY 7.8 billion, ROS was pretty good, and JPY 7.1 billion increase year-on-year. And as you can see in the notes by segment, Energy Systems & Solutions and Infrastructure Systems & Solutions and Building Solutions and Digital Solutions saw an increase, thanks to the effect of the restructuring and procurement reforms, as I said earlier. However, for Electronic Devices and Storage Solutions, sales declined, and that pushed down the profit as well due to the trade issues between U.S. and China. No impact of exchange rates, and income from continuing operations before income taxes was down JPY 129.7 billion. Loss provisions for transfer of LNG business, minus JPY 89.3 billion; and approximately JPY 40 billion equity earnings in Toshiba Memory, JPY 12.2 billion last year. So there was a difference of JPY 50.3 billion due to the change in equity earnings from Toshiba Memory, as you can see in the notes.
And as for the free cash flow, positive JPY 39.9 billion. Last year, we had a gain from the sale of Memory business, and therefore, down significantly year-on-year.
Moving onto the balance sheet, equity attributable to shareholders of the company, JPY 1,199.1 billion, and the shareholders' equity ratio is 30%. And compared to the end of March, down JPY 257.6 billion. This is due to the decline in the net income of JPY 142.2 billion and the amount of share repurchase, JPY 104 billion. Net interest-bearing debt was minus JPY 645.7 billion, which means cash position which is JPY 255 billion less than 3 months ago. Free cash flows were positive, but given the JPY 100 billion for share repurchase, and, as you're aware, the operating lease needed to be recorded based on the accounting standards in the U.S., and so we had to record the operating lease liabilities as well. And therefore the net interest-bearing debt was in the declining trend. And exchange rate was JPY 108 to the dollar, an appreciation of JPY 3.
And on the next page, you can see the details of the variance analysis. That was shown in pink. This is the hard disk selling price that's in relation to the selling price, the lower sales price, minus JPY 2.6 billion, and we also saw the impact of the decrease in sales in semiconductors. And third from the right, the group-wide measures IT, DX. These are the positive cost, but we are spending fixed assets for future improvement through these measures. Now these negatives were canceled out through the effect of restructuring and group procurement reform. So overall, we were able to see an improvement by over JPY 7 billion year-on-year.
Nonoperating income and loss, on the very bottom, the star 1 and 3, the notes. Equity earnings from Toshiba Memory, JPY 38 billion, that was recorded in the first quarter. And for others, gain from the transfer of -- rather the loss provisions of the transfer of LNG business, amounting JPY 89.3 billion. As for free cash flow, on the top, you can see the raw value, whereas in the middle, you can see the cash flow from Memory business, which accounted for a large portion historically. And so at the bottom, you can see the cash flows excluding the Memory businesses. The free cash flow was positive JPY 39.9 billion, or close to JPY 40 billion. Year-on-year deterioration somewhat, but last year we recorded some special factors. In Energy Systems, there were large sales resulting in the collection. So there was this very special factor last year that contributed greatly.
Balance sheet. On the asset side, on the left-hand side -- we are comparing to the end of March -- cash and cash equivalents on top, JPY 1,335.5 billion down to JPY 1,062.7 billion, down around JPY 270 billion. We repaid the subordinate loans of JPY 180 billion in June, that was one factor, and the repurchase of shares amounting to JPY 100 billion, accounting for JPY 270 billion reduction in cash and cash equivalents. And some special factors, the second from the bottom, the yellow portion, property plant and equipment JPY 385.7 billion up to JPY 563.4 billion. This is due to the operating lease being recorded due to the change to the accounting standards, difference of around JPY 160 billion
in relation to the operating lease being recorded. At the bottom, other assets. Here again, JPY 40 billion or so decrease at Toshiba Memory, about JPY 40 billion equity loss was recorded, and therefore we did the revaluation in our investment account, reflected here.
On the liabilities side, interest-bearing debt about JPY 20 billion lower quarter-on-quarter. As has been explained already, the 2 factors. One is the repayment of subordinated loans, JPY 180 billion, which means interest-bearing debt was reduced by JPY 180 billion. But we also recorded the operating lease liabilities, JPY 160 billion. And therefore, between the 2, JPY 200 million reduction. And as for other liabilities, at the bottom, over JPY 80 billion increase. Main factors were loss provisions for LNG transfer agreement, and that accounted for an increase in other liabilities.
Moving on to business results by business, starting on Slide 13. Here, you can see the overall picture. Year-on-year comparison, overall net sales of JPY 30 billion down, and operating income JPY 1 billion improvement. As for sales, you can see others at the bottom down JPY 46.3 billion; this is in relation to the deconsolidation of PC business. And Electronic Devices & Storage Solutions, down JPY 28.4 billion; this reflects the decline in sales due to the U.S.-China trade issues. Electronic Devices & Storage Solutions, minus JPY 3.2 billion in operating income. Excluding that, generally speaking, in all other segments, we saw improvement. For others, down JPY 3.9 billion in operating income; this is due to the IT and digital business investment type of expenses being recorded for future business creation.
So let me give you the details by segments. In Energy Systems & Solutions, operating income, operating loss of 3.4%, which is an improvement of JPY 900 million year-on-year. This includes restructuring effect, JPY 2.4 billion, and slight positive coming from the exchange rate changes, meaning that the actual results for the operating income was a decline for Transmission & Distribution Systems. This is fine. But for Thermal & Hydro Power Systems, with a decrease in projects, we saw a decline in sales, resulting in decline in operating income as well. And in Nuclear Power Systems, year-on-year, slight decrease in profit, but this is due to the sales mix of projects. So we expect the projected profit to be generated in the second half. In terms of the order backlog, 21% down compared to a year earlier.
As explained 3 months ago, there are overseas nuclear new construction projects which have been canceled, have officially been agreed. This agreement was reached last year, and this had a major impact. And due to the reduction in project numbers, we saw a decline in Thermal & Hydro Power Systems decrease as well. But in terms of gross profit, we saw an improvement.
Moving on to the Infrastructure Systems & Solutions, I think there has been an overall improvement. And in the net sales, actually now JPY 8.8 billion. And operating income, an improvement by JPY 4.4 billion, and restructuring definitely made its contributions. And the [indiscernible] structure seems to be rather positive. And moving down the Infrastructure Solutions, so it used to have Building Solutions, but now it's spun out. And actually, elevators and escalators and air conditioning and put them together, the total number is there. Actually, in the business, there seems to have been a positive trend here. I think the numbers are self-explanatory.
Moving on, devices and the storage. I think this is holding okay, and the net sales down JPY 28.4 billion, down 13% and have the year-on-year basis. And also on operating income down JPY 3.2 billion. Last year, we had a restructuring of the JPY 3.2 billion actually, so this is on the by the JPY 6 billion and the semiconductor, the revenue went down by JPY 14 billion. [indiscernible] went down due to the market conditions in China, it is coming down. Certainly due to the lower sales, we are suffering from the low growth in the operating income. [ HDDs ] and others are down JPY 14.4 billion (sic) [ 14.4% ]. Allow me to partly expand on this. Resales of memory products are now -- some activity going on. So resale actually is coming to an end. So this JPY 14.4 billion can be fully explained by the Toshiba Memory. So it has no impact on the operating income. HDDs, by the way, I would say, is at a peak season. But again, other things are moving rather positively. So on the profit and loss, how this is making the big contributions behind this number.
Talking about HDDs, hard disk drives. Well, in personal computers and moving on to the data centers, there is a positive shift between these 2. So due to the product mix changes, we are having some positive numbers.
Next page, on the top it shows retail and the printing solutions and Toshiba TEC. Net sales and then our domestic retail seems rather positive and operating income on the loss. But of course, on how we have the domestic positive numbers [indiscernible], outside Japan retail, again, there is some [ dilution ] from earlier, and also the [ imprinting ] business is having a tough time, down JPY 300 million. And Digital Solutions, in the bottom, seems to be rather now positive, for public sectors and also for the manufacturing sector. We are increasing system-related projects almost JPY 13 billion, JPY 3.7 billion in terms of operating income.
And pages starting from 20, I'd like to go through highlights. First Freeport. As you've seen in heading, on May 31, we signed up an agreement with the Total. It is yet to be closed, but as you see in the second bluepoint on the front bottom, in terms of accounting standards, I believe that there is a good chance in the first to be able to close this deal. So with that point in mind, in closing, the first quarter, it would turn into -- had provisions for a loss of JPY 89.3 billion. So no, there are no [indiscernible] in the deals and people in both are actually working on this process as calmly as possible, so to speak.
Moving on to Page 21. This explains the total repurchase of its own shares, JPY 504.4 billion or the 72% completed as of the end of June. According to the latest updates, it has reached 75%. These activities are going to last up until mid-November.
Moving on to Page 22. This is equity earnings and losses from Toshiba Memory, JPY 38.1 billion. That number -- remember, the number is mentioned, that does include PPA impact of JPY 8 billion, JPY 8 billion PPA. So an actual depreciation of the asset and also we had an impact of almost JPY 10 billion -- 9.6 billion -- from the blackout. This has been the report we have received from Toshiba Memory. So JPY 8 billion and also JPY 10 billion including these 2 items. In terms of our present basis, actually, it is going to be to JPY 10 billion to -- JPY 20 billion rather, and that has been a substantial number. However, it shows, looking into the bit growth and the changes in ASP based upon the information we have received from Toshiba Memory. That's what you see there.
Moving on to the forecast for the FY 2019, and net sales and operating income, the targets have not been changed. And for reference purposes, LNG, the loss for the Memory of first quarter on the actual number and also free cash flows. As you see in the notes, there has been some improvements in the trade terms to subcontractors. All these other players are working on these procedures, so JPY 90 billion. That was an impact in terms of cash flow and based upon then, of course, on the interest bearing and also the equities and -- shareholders' equity, are going to be the basis out of this LNG repayment, of course it's one of the items. And with that done, as of the end of March, JPY 900 billion on the cash side, but now it has gone almost JPY 0. And for FX for the past 9 months, JPY 105 to $1. I think you have seen this graph again and again, shows the JPY 35.4 billion moving up to JPY 140 billion in terms of operating income. Well, that's it.
Of course. So the procurement reform and also the sales reform activities need to be carried out. And also, it is going to be a positive and so of course, we have to work on further details. And also, there has been some improvement in terms of destruction. Actually, gross margin has been improved. And also hard disk side, more profitable business being shifted. So all these activities have been carried out while keeping an eye on the profitability. And this is going to be very important key force in our goal for whatever the opportunities. I said, of course, the restructuring impact and these 2 [indiscernible] them possible.
Next, JPY 3.4 trillion, JPY 114 billion, no changes as for these numbers. And the details is shown there. Far right column shows the comparison of the previous forecasts in Energy and Devices and Storage. At this point of time, how we have to make expectations for the somewhat downward trend in terms of the operating income.
As for LNG, the closing has been some other postponed. According to the original plan, this was supposed to sold to a company in China in the beginning of the fiscal year. But again, we didn't have, somewhat fixed cost for a long time. So that has been reflected into -- in the details. And the risk buffer, the so called risk buffer, now JPY 14 billion has been the risk buffer. So we still have 9 months to go in terms of operation.
This concludes my brief explanation. Thank you again for your kind attention.
We will now take questions. [Operator Instructions] I see a gentleman over there.
Moriyama from JPMorgan Securities. I'm looking at Slide 13. Regarding the results for the first quarter, you are showing the year-on-year comparison on this slide, but I'd like to ask about how the results compared to your internal plan, if there were any differences, could you comment on those. And the JPY 7.8 billion. What is your view on this result in itself.
Thank you for your questions. First, overall, we've been saying JPY 140 billion target on a full year basis to you. But of course, internally, we have monthly and quarterly budgets. Compared to this budget or plan, so we are on track, generally speaking. In fact, we are exceeding the internal forecast. You can see the year-on-year comparison here for the semiconductor devices. Due to the U.S.-China trade issues, we are seeing the impact and we are not achieving the internal target. However, for Infrastructure Systems & Solutions and Building Solutions, they are doing well. So overall, the results are exceeding our plan.
I see. Another question, a follow-up question. You said that in the Electronic Devices, semiconductor is a challenge. So now I'm looking at Slide 17, you are showing the results for the first quarter. The new -- we exclude that portion -- JPY 80 billion last year down to JPY 64 billion. In other words, down JPY 20 billion or so, just looking at semiconductors. Operating profit JPY 5 billion, now loss of JPY 3 billion, meaning a difference of JPY 8 billion. So JPY 80 billion to JPY 60 billion decline and JPY 5 billion profit to JPY 3 billion loss thereabout. Can you explain the details of that in terms of System LSI and discrete, please?
You are comparing to the previous year, right? For the NuFlare technology, JPY 10 billion, that level remains unchanged. So the remainder is discrete semiconductors and systems.
Well, equally, they saw a decline year-on-year. Discrete semiconductors might have seen slightly larger decline than the system LSI. So on a full year basis, for system LSI, I think it was JPY 15 billion loss. And you were aiming at turning profits. I think it will depend on the progress, but looking at the results for the first quarter, how do you plan to operate this business going forward?
System LSI, I'm not sure we can give the breakdown here, but first quarter, still a loss was recorded. Sales did not increase as much as we had expected. Towards the end of September, we are implementing the structural reform, the restructuring internally. And with that, we are expecting profit on a full year basis in the order of billions of yen. But one concern is the U.S.-China trade issues. The sales for China is quite sizable for our semiconductor business. So we'll have to see how that will play out and see -- should there be any concern for further decline in sales, we will have to take emergency measures of strictly controlling the costs, I think.
Let us now move on to the second question. Next question from the floor. The second desk from the aisle side please?
Morgan Stanley and my name is Miyomoto. There are several questions concerning the energy orders, backlog energy orders. Looking at this -- the nuclear power numbers still do remain down, here in Japan. But excluding that, it is going to be less than JPY 1 trillion in terms of the total balance. Am I right assuming this number, and -- versus you still believe in profit on internal operations going forward?
What you said is right. When it comes to the nuclear power and operations, well, how to put it? World, in order backlog, 50% or less of that is related with nuclear power. So the Memory, the number is JPY 1 trillion, and in others, less than JPY 1 trillion. Maybe that's the breakdown. And that said, we believe in the profitability in our other business operations for the past 12 months. Unless we can get to see a really stable, certain level of the operating income, we don't want to go for those deals. Of course [indiscernible] in the bidding. But again, operating income is going to be quite important. And we could be kind of happy even in the losing of these opportunities. On nuclear power and operations, when it's going to be the timing for you to book the sales numbers and 3 years is going to be the kind of the yardstick. For us, in regard to the things inside the backlog probably could be much longer than that. That's said, generally speaking, it is going to be, I would say, 2 years up to 3 years. And also the loss in competition, also low profitable projects. Actually, all these items are going to maybe be booked in terms of the sales numbers by 2021.
My second question concerning the hard disk. April until June, what's your engagement with customers and who are the customers? And what kind of forecast you're making in terms of the demand going forward for the personal computers and as well as data centers and others, please?
Well, several points. Well, first, on the -- with regards to the first quarter [ situations ], I tried to explain this in my earlier presentation. Actually, our data center is -- and again, its weight is -- slowly but steadily year-on-year basis. And data centers, the business opportunities are increasing. As for the PC business, it's been flat. It is not dropping so rapidly for the first quarter. We still have 9 months to go. And our views for the remaining 9 months, well, data centers, the players have stopped their new activities for some time, but they started making new investment into their data centers and development. This is one of things that we are sharing about. So looking at the total number for the full year, for data centers I would say, year-on-year basis, probably it is going to be 1.5x. And also the PC business, probably it is going to be the -- probably the loss is going to be more than 10%. Well, second half, actually there's going to be an increase in operating income for the entire hard disk business. So the entire hard disk business second half and onward, I would say, yes, I believe that the sales is going to go up.
The next question please.
Ezawa from Citigroup Global Markets. I'm looking at Slide 8 and 21, the variance analysis for PC. I would like to know the sales and sales mix differentials. JPY 4 billion negative for sales, but if you exclude PCs, I think sales were increasing. But you talked about semiconductors earlier; I would like to know why this is negative here. Could you elaborate on that factor? And in addition, in full year forecast, both the changes in the sales mix and the increase and decrease in sales, I think they are mixed factors. So could you explain why is it that you can expect an increase here?
Yes, JPY 4 billion decrease year-on-year, mostly in association with the sales decline in semiconductors. But if I could elaborate a little bit, earlier mentioned that the PC business is now gone. But in the operating profit level, it was negative, but it did have the marginal profit. And now that it's gone, in the absence of that sector, in relation to the absence of sales, the marginal profit has disappeared as well, but Building Systems and TISS, the social infrastructure and the software business, TDSL solutions company, these companies posted an increase in sales in the first quarter, contributing to the profit increase, compensating for the absence of the PC business. That's for the first quarter. On a full year basis, similar scenario is being envisioned. In PC business the marginal profit in the order of JPY 10 billion will be gone. But in the meantime, building structures and the Toshiba TEC software company, TDS, these are expected to show an improvement, resulting in JPY 19.5 billion or JPY 20 billion increase in profit on the overall basis, coming from sales increase. For TDS, there is negative on the semiconductor side, but on the HDDs, for data centers, that part of the business is increasing, which would contribute to the marginal profit. So there will be negative from semiconductors, to be compensated for by HDDs, and therefore not much difference year-on-year. That is our current projection.
How about the sales mix?
JPY 38 billion on a full year basis.
How are you going to achieve that?
For HDDs, that's a big factor. For PCs, the marginal profit rate was quite low, whereas for data centers, the marginal profit rate is rather favorable, which would make contribution. Another factor is that last year in Energy Systems & Solutions, I don't know if you remember, but we did provision for the lost contract, and in the absence of that, to the tune of dozens of billion of yen, there should be a great improvement.
I have another question, if I may. You're forecasting for the full year net debt JPY 10 billion. That's what I see, according to your plan. So how are you going to reach that point going through the 3 quarters. You still have a JPY 600 billion in cash. If you could kindly elaborate on that. I appreciate that. How we're going to be losing cash or money? Yes, exactly.
Well, several points. The first point is that actually, the are improved terms and conditions for relationship with customers, almost JPY 100 billion, and also return to shareholders. In order for us to reach JPY 700 billion in April to November, actually, we have to have JPY 300 billion, less than JPY 100 billion. So we still have JPY 200 million gain still on the cash side, and by repurchasing our own stock. I think this another major factor behind this. And what else. Well, going forward, definitely improvement in [indiscernible] and by March, actually JPY 100 billion. Maybe this is another big item.
JPY 250 billion you need to still have and that is coming from others?
Well, you're right. For that, actually back in March, I tried to explain our focus for FY 2019. And as a system-related business, in the lost contracts, of course, we have the provisions for loss, but the impairment definitely is going to because it's concentrated in FY 2019 as much as JPY 100 billion. And because of the repayment today, JPY 50 billion is in total or actual, due to these timing issues, increase in the repayment amount from our side.
Next person.
Hirakawa from Merrill Lynch Securities. I have 3 questions. First, a follow-up to the earlier question, just a confirmation. Looking at Slide 25, the difference in the sales mix and increase/decrease in sales, you said provisions, but I thought provisions would be a one-off expense.
Yes, JPY 45.1 billion would include the provisions for the lost contract. I know this is confusing. But in the next plan, after we have developed the next plan, the provisions that emerged are included in the onetime factor -- one-off. And the previous lost contracts, mostly in relation to the thermal power systems, that is not included there.
Could you elaborate on the ratio of each?
JPY 38 billion. Of that, about JPY 10 billion is related to the thermal power systems lost contracts in last year, the provisions for that.
I see. My second question, on operating income and loss variance analysis. I think there were some items that were revisited, looking at minus JPY 4 billion in relation to the sales increase and decrease difference. For the July-September quarter, you talked about the U.S.-China trade frictions, but it looks like that factor is not reflected. So do I understand correctly that this variance analysis just reflects the results for the first quarter and not the July-September, the second quarter projection?
Well, we actually looked on a full year basis. So it's not just based on the first quarter results. So looking at more recent developments, we do find that U.S. is getting more aggressive, and China is responding. So the impact on the semiconductor business, I think we need to take a closer look about the possible impact. There might be possibility of downside risk.
My last question. Overseas thermal power construction projects deterioration. You said that that was a factor for a decline year-on-year for the first quarter. This profitability, the deterioration, how much of that is a factor for the full year profit. And going forward, should we expect similar developments in other thermal power projects as well?
For the first quarter, you're talking about first quarter, correct?
Yes.
For Toshiba Corporation, it's outside of what the energy systems are doing. Toshiba Plant Systems used to have the medium-sized turbine projectors, the EPC. For various reasons, what we're told is that -- this is in Southeast Asia -- with the early start of the rainy season there, the construction start is being pushed back, which is expected to increase expenses, and that is being incorporated. So as a project, there are not many sizable projects, but it's large for them. But it was unfortunate that the rainy season began earlier this year than others. So I don't think we should expect a similar development in other projects.
Let us now move on to the next question, please?
UBS Securities. My name is Yasui. My first question is -- Board of Directors, actually now you have changed members of the Board of Directors. And I believe that you had several hard meetings. [indiscernible] benefits and values out of those changes. And I don't believe that you're on the BoD and a member. But again, how people are evaluating these changes.
Well, as far as I'm concerned, I'm not in a position to say yes or no. That said, I'm actually, I'm one of the observers. When we have in the BOD meetings from our side, of course, in-house, we're going to be make presentations in order to start -- help them to have really productive discussions, so -- and they're another time. Of course, we have outside directors. And I believe that things have been carried out in a "very reasonable way" and having questions and answers. And if you ask me to share my personal observation, I think these changes are truly helping us to a large extent.
Your Toshiba Next Plan, would there be any further additional things on going beyond the Toshiba Next Plan and any specific things you are talking about?
Well actually, as of today, I think we have held a total of the 3 BOD meetings. First, Toshiba Next Plan is to be completed as successfully as possible. [indiscernible] being carried out?
My second question is having to do with for monitoring, the foreign business monitoring for business on the thermal industry and [ HDD ] and also LSI, those operations. And the device seems to be quite tough, and you get -- make a reference to monitoring. And if I may say, things seem to be getting really worse and whether or not you're going to build enough now to address these serious issues.
Monitoring the business. Yes, back then I think we are talking about the system of the thermal and also the motor business and also in the hard disk business. These are the 4 businesses we were talking about. Motors and HDDs, things are going rather well, right on this plan. As on thermal, well, we -- in regard to the existing -- the deals actually are trying to make sure that there will be no [ action ] cost to be incurred. Of course, there have been some deteriorations among the affiliates. But that said, I don't believe that we are having very serious [ initiations ], actually. We are carrying out this monitoring and operations activities on a monthly basis. And I believe that there are any serious on how issues. I think our key is going to be found in the System LSI business. Of course, the U.S.-China relationship is pushing down the demand, of course, and that is going to be a negative point for us for our business. We are working on this further activities in the full restriction side up until mid-September. Our executive officers are deeply involved in work to do. And as we discussed this point earlier, as far as in FY '19 goes, actually, we had a large loss on system LSI side in terms of operating income. So we have -- it's painful for us to go through the restriction. And of course there's challenges, partly coming from the poor relationship between the U.S. and China. But again, we are hoping that we could address this issue, so that we can come up with a reasonable level of the operating income ratio. And with this point in mind, we are continuing with our monitoring objectives.
My third question, risk buffer. Could you elaborate on the risk buffer. In November last year, how you announced that Toshiba Next Plan and risk buffer, you told us that you have negative JPY 30 billion, and this time they are negative JPY 14 billion. What's the reason -- and there's some gap. Whether or not, I would like to truly double check whether or not and how you're actually moving to data declining in the [ path ].
Risk buffer JPY 30 billion, that's where we got started. And also the -- whether or not the macroeconomic, they're slowing down activities on the semiconductor. Actually, we had to go through data restructuring. So we told you that JPY 10 billion, actually in May, JPY 20 billion. Then since then, semiconductor, the decline in revenue in semiconductor and also in thermal. We try to be really choosing and selective, and partly because of that, we are not actually increasing the sales opportunities, pushing down our profit, operating income. And also LNG, we are still having it for somewhat of the long period of time. So the JPY 16 billion with all these elements in place. So the JPY 14 billion versus JPY 16 billion, actually JPY [ 14 billion ]. And also, we still have 9 months to go in terms of operation.
Looking at the macroeconomic conditions, of course, the unstable factors. Yes, there are many unstable factors. So at this point in mind, this JPY 14 billion, we have to make sure that now we can keep to the possible out of JPY 40 billion so that we can actually reach the JPY 140 billion, or they're going beyond JPY 140 billion as a landing point. Of course, the U.S. and China relationship simply cannot be addressed by us. But whenever we can get decision to some issues in the same terms, I think it's very important for us to be proactive, again, including the short-term activities. Of course, they're working on the reform activities, these are the business opportunities we're trying to grow these areas. So with that point in mind, we are looking, going through the cost structure and also we're trying to increase R&D in the budget and also in CapEx, and trying to increase the depreciation, the amount. It's very important for us to fully appreciate what is going to take place globally. It's not the case that we're going to give up all this, the spending items further. We're going to chase after better productivity and a better efficiency in our activities, in operations, of course. So we are actually having the good discussions in terms of efficiency and the productivity.
There is a correction to the earlier translation. What was translated as lost contract is actually loss construction. Next question. Mr. Hashi from Goldman Sachs.
I have 3 questions. Looking at the results for the first quarter. The sales increase was pretty high in some of the subsegments. For example, Transmission and Distribution, Digital Solutions. For example. I think some saw a large increase thanks to large contracts. And then maybe there is the last minute rush in sales, for example, in PCs, which is what we see in the market. So from that perspective, I'd like to know whether there were any special factors in the first quarter that contributed to higher sales in certain segments -- subsegments. If not, fine.
True. With Windows 7 support ending, we understand that PCs are selling well. And some of the HDDs business, maybe we are feeling that, but that impact is not that large on a year-on-year basis, not much effect in the first quarter. In other improvements, software related. I think all the players in the market are enjoying good business in relation to AIs, IOEs and the promotion of IT technology at plants as well as government agencies. So to what extent would this be sustained is a question, but it's not the same as PCs seeing a temporary spike in business. I think this is going to be maintained, sustained quite a bit, now official infrastructure is good.
So were there any special onetime factor in the first quarter?
No, I don't think so.
For digital, for system integration type of business, we are not going to see the orders coming in earlier, what we see is the product licenses and other licenses. There's big projects being won. You're not seeing that either?
No. I think you're talking about the software companies. We are not seeing that.
I see. My second question -- sorry, the second question about the loss on the part of Toshiba related to the power outage, the quarter sales of cost, and that maybe it's small, and 1/3 impact to the quarter was once reported. But compared to that, I think it was much smaller. Is this because of the inventory disposal or loss related to the lower utilization rates, operation rates?
One is inventory valuation, as you have correctly described. You said -- well, I think you've got the impression that it was smaller. But for us, JPY 10 billion in the equity earnings is quite sizable. We don't consider it to be small. Although I can't give you the details on their operating profit basis, the impact was quite significant.
So inventory valuation and the loss related to the fixed costs due to non-operation was being felt.
Still, you -- your impact was 40% of what's shown there, right?
But this is on a net income basis. For Toshiba Memory overall, profit before income tax was negative. And I think that they are recording the tax effect.
And in the earlier session, when you spoke to the media in your press conference, you said that things like this would not be good for Toshiba Memory. Were you talking about the equity earnings from Toshiba Memory impacting your income? Or is there something of a balance risk that you're not telling us about? In other words, if the equity is going to be [ pared ] to a certain extent, you are going to have to make further investment? Was that your point? Could you elaborate on that question.
We were not hiding anything. We were sharing everything with you. So in terms of impairment, Toshiba Memory does have the goodwill and also has the intangible assets. So should the loss situation continue for some time, maybe not on a quarterly basis but on an annual basis, should that continue accounting-wise, impairment possibility is fair, and that is what I meant. Should prices go up, no problem at all. And when Toshiba Memory was part of Toshiba, we had been looking at ups and downs. So we believe that the current downturn is just a temporal one, a momentary effect. But what I meant to say earlier was that, accounting-wise, that there is that possibility.
Now we have to close off our presentation for our financial results. Thank you for your precious time despite the hot weather outside.