Wire and Cable Sector
Initiating Coverage of Four Majors: In Worsening
Environment, Focus on Earnings Disparities in
IT/Telecom Businesses
Wire and Cable
Akira KishimotoAC
(81-3) 6736-8646
akira.x.kishimoto@jpmorgan.com
JPMorgan Securities Japan Co., Ltd.
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• Focus on earnings disparities in companies’ IT/telecom businesses: We
initiate coverage of the four major wire and cable companies with a Neutral
sector stance. We rate Furukawa Electric Overweight and the other three
companies Neutral. The earnings of wire and cable makers will probably remain
depressed through FY2009 because of the severe impact of the economic
downturn on the automotive, electronics, and materials sectors. With the
pullback in demand for goods having squarely hit the wire & cable sector, we
think investors should focus on disparities in companies’ IT/telecom businesses,
the only area in which we expect earnings to be firm.
• Sector earnings entering worst period: The earnings of wire and cable makers
began worsening markedly from 2H FY2008. We think a significant decline in
earnings in the automotive, electronics, and materials (e.g., copper, aluminum)
businesses is unavoidable, as inventory adjustments at users have sharply
reduced volume demand and market prices have plummeted. The wire and cable
companies achieved high profit growth following the collapse of the IT bubble
in 2001 by diversifying away from the IT/telecom area, but we now expect
earnings to decline rapidly.
• Furukawa should maintain premium for IT/telecom business: Furukawa’s
near-term earnings outlook is also poor, like the three other majors, and we
expect to see earnings declines or even losses at its automotive, electronics, and
materials businesses from 2H FY2008 through FY2009. However, it has the
highest exposure to the IT/telecom area among the four majors and moreover
possesses a number of globally competitive products, such as optical amps and
pump lasers. We expect earnings from this business to limit the erosion caused
by other operations and think Furukawa will be the only sector company to
achieve an operating profit in FY2009. With sector earnings likely to worsen
further through FY2009, we think Furukawa’s shares deserve a premium
valuation for the strength of the company’s IT/telecom business.
• Initiating coverage of four wire and cable companies: We assign Neutral
ratings to the other three companies: Sumitomo Electric Industries, Fujikura, and
Hitachi Cable. We expect Sumitomo Electric to suffer a particularly large drop
in earnings through FY2009 because of its high exposure to automotive wire
harnesses. The two other companies will also likely report operating losses
through FY2009. We nonetheless assign them Neutral ratings, as the decline in
their share prices to well below book value indicates that the near-term
deterioration in earnings has been discounted to a good extent. Risk factors
include a protracted worldwide slump in auto demand and changes in wireline
telecom carriers’ capital investment plans.

Table of Contents
Executive Summary .................................................................3
Competitiveness in Optical Equipment Determines
Profitability..............................................................................14
Recovery of Wiring Harness Business from FY2010 ..........31
Individual Companies ............................................................38
Furukawa Electric (5801) .......................................................39
Sumitomo Electric Industries (5802).....................................57
Fujikura (5803) ........................................................................71
Hitachi Cable (5812) ...............................................................83
Appendices: Optical Telecommunications Networks .........98