Hoya eyes up to $5 billion in acquisitions

Japanese high-tech glass maker Hoya Corp could spend up to $5 billion on acquisitions over the next few years, its chief executive said, as it looks to expand its medical equipment business.

Hiroshi Suzuki also told the Reuters Global Technology, Media and Telecoms Summit that it may need to cut some jobs as it finishes restructuring of Pentax, a digital camera and endoscope maker it acquired last year.

Hoya, which makes glass used in the production of semiconductors and liquid crystal displays, is eager to put its cash pile of about $1.5 billion to work on acquiring companies instead of letting it build up on its balance sheet.

"If (we) don´t do anything for the next couple of years half of our balance sheet will become cash. That´s not good. I guess we need to do sizeable acquisitions in the next couple of years," Suzuki said, adding it could use debt to spend up to $5 billion.

"Anywhere between $1 billion to $5 billion," he said.

Pentax vies with Fujifilm Holdings for the No. 2 spot in the market for endoscopes, camera-equipped medical devices used to examine inside the body. Both trail Olympus Corp, which dominates with 70 percent market share.

Olympus strengthened its hand last year by clinching a roughly $2 billion deal to buy Gyrus, a British maker of tools that can move or treat tissue in a less invasive manner than traditional surgery.

Suzuki said Hoya was also looking to complement its endoscope business with an acquisition that would allow it to use the endoscope for diagnosis instead of just viewing an organ. He is also interested in businesses in the opthalmology field.

"I won´t limit ourselves to the extension of the endoscope business only. More we are looking at the medical field from the eyes of optics," Suzuki said.

CONSOLIDATION, PENTAX

Last month Hoya posted its first annual fall in operating profit in six years, hurt by falling prices of photomasks used to etch circuitry onto LCD panels and weaker sales of glass used in the production of hard disk drives.

Suzuki said he expects a wave of consolidation to hit both the photomask and hard drive glass markets. Both have about 6 players, and that number needs to be whittled down, he said.

"Even three may actually be too many. The market will not stabilize until you have two, two-and-a half players," he said.

Hoya´s top competitor in hard drive glass substrates is Konica Minolta Holdings Inc. Hoya also makes substrates with the magnetic layer applied, competing with Showa Denko and hard drive makers that do that process in-house.

It estimates its controls about 30 percent of the global market for large LCD photomasks. Its main rivals are Kyoto-based SK-Electronics Co and South Korea´s LG Micron.

A reshuffling of the photomask sector could come in many forms, Suzuki said: "We could be the one to buy somebody. We could be the one to sell our business. We could be the one to merge with someone else.

While acquiring Pentax made Hoya one of the top players in the lucrative endoscope market it also saddled it with a digital camera business struggling to make money amid tough competition with larger, more efficient producers such as Canon Inc.

Suzuki estimated that restructuring at Pentax was about 70 percent finished, and said the remaining 30 percent would focus on instilling a sense of accountability and other issues related to changing the corporate culture. It may also include job cuts.

"The rest of the 30 percent is really to change the mentality of the Pentax culture. And also we probably need to look at redundancy," he said. "It´s not grossly redundant, but there are always places that you have redundancy that you take a merger as a good opportunity to address."

Hoya does not give full year forecasts until after the third quarter. The consensus of 13 analysts polled by Reuters calls for profit to rise about 14 percent to 108 billion yen in the year to March 2009.

"It depends on the market situation but things are actually looking better than the last half of last year so I think it´s a feasible number," Suzuki said of the consensus forecast.