TOKYO (Reuters) - Mitsubishi Electric Corp will need to shift a great deal more production and procurement overseas if the yen continues to rise, the industrial conglomerate’s president said on Friday.
Mitsubishi Electric, which competes with Siemens, General Electric, Rockwell Automation and Schneider Electric, is already on course to move production offshore, where growth prospects are brighter.
But if the surging Japanese currency, which is hovering around 77 to the dollar, gains more ground to 70 yen per dollar, the company would need to greatly expand its overseas production from the current 18 percent of sales, as well as its overseas procurement of parts and materials, Kenichiro Yamanishi told Reuters in an interview.
“We would do what we can, technologically, to lower materials and manufacturing costs, but there is a limit to what we can do,” he said.
Elpida Memory Inc, Japan’s biggest maker of DRAM chips, said this week it may shift some production to Taiwan to cope with the strong yen, which remains near a record high set last month.
Mitsubishi Electric, whose products range from lasers and satellites to air conditioners and elevators, has proven resilient against the strong yen, with profitability holding steady even compared with 2007, when the yen was at 114 to the dollar and 162 to the euro.
It will continue to cut costs, in part by substituting aluminum for copper and resins for metals, and by lowering defect rates, Yamanishi said.
“We can take a strong yen, but this is not just about Mitsubishi Electric,” Yamanishi said, warning of a hollowing out of Japan’s manufacturing sector. “The current yen strength is extreme.”
Yamanishi also said Mitsubishi Electric’s bread-and-butter factory automation business had shown few signs of slowing down, despite fears about the fragility of the U.S. and European economies.
Orders in China, South Korea and other parts of Asia remain strong, with equipment related to smartphone and construction machinery production picking up the slack left by sluggish demand from makers of liquid crystal displays and solar panels, he said.
Demand for smart grid-related products is also accelerating in Japan in the wake of the radiation crisis at Tokyo Electric Power Co’s Fukushima nuclear power plant, he added.
Increasing awareness about energy conservation is boosting demand for energy-efficient air conditioners in China, Europe, developing nations and even in the United States, he said.
“If the current pace of demand in the U.S. continues, we may eventually have to make air conditioners there,” he said.
Mitsubishi Electric, which supplies servo motors to car makers and power generators to thermal power plants, in July nudged up its full-year operating profit forecast by 2.6 percent to 240 billion yen ($3.1 billion), slightly below the market consensus of 253 billion yen, according to Thomson Reuters StarmineEstimates.
Editing by Edmund Klamann