News Column

Japanese Giant Electronics Firms Slow to Respond

Nov. 5, 2012

Kazuaki Nagata and Hiroko Nakata, Japan Times, Tokyo

If Japan's electronics giants, which again posted deep losses this week, want to beat Samsung, LG and Apple, they need to quickly overhaul their business strategies and carry out further cost cuts, analysts said Friday, but prospects appear bleak that true soul-searching will come anytime soon.

Panasonic Corp., Sharp Corp. and Sony Corp., once symbols of Japanese strength, released dismal financial results for the first half of this business year to March 31 as well as dire forecasts for the full year.

In addition to their weakened core businesses, shrinking demand and price drops for mainstay products such as TVs, solar panels and LCD panels, experts said the companies failed to focus on their profit drivers amid harsh global competition.

"Japanese electronics makers didn't take speedy steps amid changing business environments. That was the biggest reason for their losses," said Takashi Hirai, a senior partner at consulting firm Roland Berger Ltd.

"What they have to do is construct a good business portfolio in a speedy way," said Hirai, adding that they have to find the right combination of business sectors to focus on. "They have focused too much on developing high technology."

Sharp President Takashi Okuda admitted during a news conference Thursday to being too slow to act.

"We should have taken much speedier steps to reduce the business risk when the business environment quickly changed," he said.

For example, the struggling electronics maker invested aggressively in liquid crystal displays for large flat-screen TVs and solar panels only to see demand weaken and prices fall because Taiwanese and South Korean makers produced them in huge volumes at lower costs.

Despite the worsening business environment, Sharp was slow to shift away from the aggressive strategy, causing big losses, analysts say.

As they kept losing competitiveness with their products in the global market, Panasonic, Sharp and Sony posted record net losses last business year.

For Panasonic the red ink ran to Y772.1 billion, while Sharp lost Y376 billion and Sony lost Y456.6 billion.

The losses included huge restructuring expenses to drastically cut operating costs in hopes of making a recovery in the coming years.

Panasonic has cut about 10 percent of its workforce. Sharp has said it will shoot for a reduction of about 10 percent and Sony 6 percent. They have also shut down some of their key factories.

Although they have made improvements through cost-cutting in the first half of this year, they are still struggling and have no choice but to retrench further.

Panasonic lowered its full-year forecast dramatically, from a net profit of Y50 billion to a net loss of Y765 billion, by adding more restructuring costs, digging into deferred tax assets and writing down the value of its cellphone, solar panel and lithium-ion businesses.

But analysts say Panasonic will still have a hard time making a significant recovery and could cut more costs. It also needs to review its business portfolio, they say.

Panasonic President Kazuhiro Tsuga admitted that a major problem facing the firm is the slump in its core electronics business.

He said digital products for consumers have especially been declining.

"We have to admit that we are on the losing side in this field," he said Thursday.

Yasuo Nakane, an analyst at Deutsche Securities Inc., said that while the segment of digital products for consumers is a headache for the firm, Panasonic has other solid businesses, including home appliances, factory automation and home solutions, so it should strengthen those sectors more.

Sharp lowered its full-year projection to a record net loss of Y450 billion, worse that the projection it made in August for a Y250 billion net loss this year.

Like Panasonic, Sharp has added extra restructuring costs and had to dig into deferred tax assets.

While Sony held to its projection that it will post a Y20 billion net profit for the year, the firm said its core electronics business, including the problematic TV segment, is still having a hard time making a recovery.

Chief Financial Officer Masaru Kato said Sony is determined to achieve its goal of getting back into the black, saying "posting a loss for five consecutive years is unacceptable."

But he admitted it will be difficult to make its electronics segment profitable this year.

"The yearend sales season is coming and we will of course do our best, but turning the electronics business into the black will be difficult when looking at the situation objectively," said Kato.

Because demand for smartphones and tablet devices has grown rapidly, "(Sony) should be making a lot of profit from those devices, but they are not making that much," said Nakane of Deutsche Securities.

Sony plans to reinforce its strong areas, including digital imaging and video games, and also focus more on areas expected to grow, among them medical devices, in the next several years, but "it is hard to see how they increase their profit this year and next year," Nakane said.

While keeping its projection of posting an operating profit of Y180 billion, Sony revised its sales forecast downward by Y200 billion due to the sluggish domestic economy and the impact of strained Japan-China relations.

Credit Ratings Lowered

Fitch Ratings dealt another blow to Sharp Corp. on Friday, saying it has cut the embattled electronics giant's credit rating to junk -- the second such downgrade by a global ratings agency.

Also Friday, Standard & Poor's downgraded Panasonic's credit rating for the second time in a year after it warned of a mammoth Y765 billion annual loss as it undergoes its own overhaul.

The move by Fitch came after Sharp said Thursday it will post a whopping Y450 billion annual loss while warning it has doubts about carrying on as a viable firm.

Fitch said it slashed its view on Sony Corp. by six notches to a rating of B minus, which means its credit rating is no longer considered a safe, investment-grade bet.

"The downgrade reflects growing risks to Sharp's liquidity position, reinforcing Fitch's view that the technology company will struggle to turn its business around," Fitch said Friday.

Distributed by MCT Information Services

Source: (c) 2012 the Japan Times (Tokyo)

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