TOKYO -- Japan's Denso Corp., a key supplier and affiliate of Toyota Motor Corp., on Friday slashed its annual operating profit forecast by 12.5 percent as it warned a chip shortage could cause auto production cuts.
The diversifed auto components and technology supplier lowered its full-year operating profit forecast to 420 billion yen ($3.26 billion) for the year to end-March, from 480 billion yen expected previously.
Denso said the new forecast took into account the pandemic's impact in China and the risk of vehicle production cuts due to the ongoing global semiconductor shortage, despite efforts being taken to reduce costs.
The downward revision comes after the world's top-selling automaker Toyota in November lowered its vehicle production forecast for the current financial year through March to 9.2 million vehicles from 9.7 million amid the chip shortage.
Denso, which specializes in thermal, powertrain management and electronics systems, gets about half of its revenue from Toyota, which also includes Toyota truck unit Hino Motors and small-car maker Daihatsu.
Denso's revised profit forecast reflected slowing sales in China and Japan, which are relatively profitable markets for the company, executive Yasushi Matsui told reporters during an earnings briefing.
In China, Denso has also faced production difficulties because of the rapid spread of COVID-19 as well as supply chain issues that are also affecting auto makers, Matsui said.
The company's production in China is only at 40 percent of original projections and it not expected to make a full recovery any time soon, he added.
Denso's new forecast would still mark a record operating profit, Matsui said, but it was lower than a 474.21 billion yen average forecast by 20 analysts, according to Refinitiv data.
Denso, which counts outgoing Toyota CEO Akio Toyoda as a board member, posted an operating profit of 112.5 billion yen for the three months to Dec. 31, versus an average 125.71 billion yen profit estimated by 10 analysts.
The supplier ranks No. 2 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers with estimated worldwide sales to automakers of $43.6 billion in 2021.