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2011 — a year electronics makers want to forget

by Kazuaki Nagata and Hiroko Nakata

Staff Writers

Major domestic electronics makers have had a rough year, with many this week projecting massive group net losses for the year to March because of the strong yen, natural disasters at home and abroad, and the sputtering global economy.

Industry observers said Friday that factors beyond companies’ control, including the Great East Japan Earthquake and Thailand’s record floods, clearly affected their businesses — but only to a certain extent.

Instead, they pointed to their declining fortunes in the TV market as a more significant setback.

Japanese firms may have led the TV sector for years with their innovative and reliable technologies, but during the digital era their businesses have fallen into the red due to cutthroat competition from other Asian rivals that has sent prices plunging.

Experts said domestic firms had no alternative but to drastically change their strategies and shrink the size of their TV businesses in a bid to improve cost efficiency.

The shift also allowed them to reallocate resources to potentially more profitable sectors, such as liquid crystal displays for the surging smartphone and tablet markets, and to tap growing demand for environmentally friendly products.

“The rate at which TV prices have been declining doesn’t look like it will slow anytime soon, while consumer demand also has shrunk,” said Hiroshi Sakai at SMBC friend Research Center.

The plunge in demand for TVs in the October to December quarter was greater than expected — especially in the domestic market, Sakai said.

Sharp Corp. in particular felt the negative impact on its revenue, as the number of units the company sold dropped by about 38 percent compared with the same period in the previous year.

Sharp posted a net loss of ¥213 billion in the first nine months of the current fiscal year, and has projected a record ¥290 billion annual loss.

The firm already has announced it will shift resources from the unprofitable midsize TV segment to the manufacture of small and midsize LCD panels, as consumer demand for smartphones and tablet devices is expected to continue to soar in the coming years.

Nobuo Kurahashi, an electronics industry analyst at Mizuho Investors Securities Co., stressed the impact of the yen’s record-high levels against the dollar and the euro on makers’ profits.

Panasonic Corp. President Fumio Otsubo made the same point during a news conference Friday in Tokyo to explain the firm’s massive losses from its TV and semiconductor businesses, which are offsetting revenue from more profitable operations.

“The exchange rate . . . hugely affects profits and product pricing strategies,” Otsubo said.

In October, Panasonic unveiled a plan to turn around its failing TV business by slashing production and moving resources to large-screen televisions and LCD screens for other devices.

By the end of March, the firm will halt production of plasma displays at its No. 3 plant in Amagasaki, Hyogo Prefecture, and at an LCD panel factory in Mobara, Chiba Prefecture.

Panasonic intends to aggressively promote other home electronic products in emerging economies, lithium-ion batteries for hybrid and electric vehicles, and energy management solutions.

“It’s not that the TV business has lost the potential for growth,” Otsubo explained Friday, noting that makers around the world invested in TV panels excessively several years ago, causing an oversupply and sending prices tumbling.

“We are now experiencing the backlash,” he said.

The performance of their TV businesses is also to a large extent determining other companies’ forecasts.

After posting a massive loss of about ¥780 billion three years ago, Hitachi Ltd. radically restructured its unprofitable businesses, including the TV division, and shifted its focus to other fields, including communication technology services and infrastructure.

And while other makers have struggled this year, Hitachi racked up profits of ¥85.2 billion for the April to October period.

Televisions will remain key products for Sony, despite its TV business being expected to post its eighth consecutive annual loss, Sony Corp.’s next president and CEO, Kazuo Hirai, said in a news conference Thursday.

Hirai vowed to turn around the TV business but other than citing cost-cutting efforts he did not disclose his specific plans for turning around Sony’s TVs business.

Kurahashi of Mizuho Investors said the outlook for Japanese makers in the TV sector is not good, adding that Samsung and LG Electornics currently enjoy advantages due to the weak won, cost-cutting efforts and their scale of production.

“There is no way Japanese makers can catch up with them,” he said.