Slump forces TV manufacturers to change strategies

by Mie Sakamoto

Kyodo

Once hailed as “the king of home appliances,” the television has become a headache for Japanese electronics makers, which have been forced to shift their business strategies.

On Monday, Panasonic Corp., known for its Viera brand TV sets, said it will scale down its money-losing television business by reducing and consolidating production of plasma display panels and liquid crystal display panels.

“TVs remain an important product, but we have not been able to profit from them,” Panasonic President Fumio Otsubo said during a news conference, citing multiple factors, including the strong yen and declining prices, behind the structural reform.

“Many manufacturers worldwide have entered the flat-screen TV business,” making it harder for Panasonic to capitalize on its technical strength and product appeal, Otsubo added.

“We have implemented various measures such as replacing models, cost-cutting and (reviewing) cooperation with distribution, but the business structure did not become what we expected it to be,” Otsubo said.

His comments underscore how TV makers, although they have seen growing demand in emerging economies, have struggled to market their products amid intensive global competition.

Panasonic plans to book ¥514 billion in total for the current fiscal year in restructuring costs related to its TV and semiconductor operations, prompting it to revise its group net balance projection for the year to a massive ¥420 billion loss.

Sony Corp., which holds the No. 3 share in the global LCD TV market after South Korea’s Samsung Electronics Co. and LG Electronics Inc., is also struggling to achieve profitability through its business, which appears likely to post losses for the eighth straight year for the current fiscal year ending in March.

Under such circumstances, the company is in talks to terminate its joint venture with Samsung for the production of LCD TVs and increase the procurement of cheap displays from Taiwanese and other manufacturers, company sources said.

“It is a bit of an abnormal market,” said Yoshio Takahashi, an analyst at Moody’s Japan K.K. “Though manufacturers are making considerable investments in research and development to make high-tech products, no one is making profits.”

While sales volumes are likely to continue increasing in emerging markets, average retail prices are expected to fall, making it more difficult for TV manufacturers to secure profits unless they make major cost-cutting efforts, such as procuring cheap components, analysts say.

The situation in Japan is also severe, as replacement demand for TVs has weakened due to the near completion of the transition to digital terrestrial broadcasting.

According to research firm DisplaySearch, the LCD TV market in value terms is projected to fall after peaking in 2012 with $101.73 billion, while shipments are likely to continue growing, helped by robust demand in emerging markets.

Hisakazu Torii, TV market analyst of DisplaySearch, said intensifying competition with many players from Japan, South Korea and China is contributing to a fall in prices.

Underlining such a trend, the average retail price of a 32-inch LCD TV in the United States has fallen steadily. The average price this year is $321, in contrast to $371 in 2010 and $425 in 2009, the research firm said.

“Manufacturers are facing difficulty in differentiating televisions, prompting them to counter competition by lowering prices,” Takahashi said.

“They are facing the need to take such measures as withdrawing from the business while the scar is small or reducing losses by cutting fixed costs or scaling down their operations,” he added.

Hitachi Ltd., which has been concentrating resources on its social infrastructure business, including transportation and electric power systems, is another firm planning to reduce its emphasis on the TV business.

Amid cutthroat price competition from South Korean and other rivals, the company, which started TV production in 1956, will pull out from the TV-making business and outsource production by next March, company officials said.

In contrast, Sharp Corp., known for its Aquos brand TV sets and its leading share in the Japanese flat-display TV market, has shown its determination to stick with the TV business by enhancing its lineup, while undertaking a reform of its LCD panel production by shifting the focus from panels for TVs smaller than 40 inches to large-screen TVs and small LCDs for smartphones and other devices.

In September, the company launched eight types of ultrathin Freestyle Aquos LCD televisions that give users greater freedom for installation sites in their homes.

“By taking such steps as launching 80-inch TVs, we’d like to enhance our lineup of TVs and actively expand marketing in major global markets, including the United States,” Sharp Executive Vice President Toshio Adachi said at a news conference.

Such a strategy by the company is “very interesting,” said Moody’s Takahashi, saying it could be one solution to differentiating products. “Customers are unlikely to buy new TVs unless they are clearly different” from previous ones.