Electronics giants caught in race against time: analysts

AFP-JIJI

Japan’s battered electronics giants are in a race against time, analysts say, as losses that threaten their very survival mount and overseas rivals appear to be on the verge of running away with the show.

The latest earnings season has been ugly for the likes of Panasonic Corp. and Sharp Corp., which project an eye-watering combined annual loss of more than ¥1.2 trillion, underlining fears about the sector’s future.

Money-losing Sony offered a glimmer of hope by reporting it is still on course to eke out an annual profit, following four years in the red. But Sharp almost doubled its estimated losses to a record ¥450 billion and voiced doubt for the first time over its future as a going concern, just a day after Panasonic said it would lose in excess of ¥770 billion in the year to March.

The sector’s myriad woes range from high labor costs at domestic plants and the strong yen to strategic blunders and a failure to keep up with such rivals as Apple Inc. and South Korea’s Samsung Electronics Co. in the lucrative smartphone and tablet markets.

While Japanese companies continue making everything from cellphones and CD players to money-losing TVs and washing machines, their previously world-beating brands are falling further behind global competitors, even as the domestic market slows.

Among numerous missteps, the industry made huge investments in flat-screen televisions only to see prices plunge amid intense market competition, resulting in razor-thin profit margins — or none at all — for firms that can ill afford them.

However, companies have largely resisted calls to abandon loss-making units, with the announcement by longtime rivals Sony and Panasonic that they are teaming up to manufacture televisions serving as but one example.

“Japanese electronics firms need to sift through their businesses, taking what’s good and leaving what’s bad,” said Masahiko Hashimoto, an economist at Daiwa Institute of Research in Tokyo.

Slick marketing campaigns and locally tailored products offered by profitable automakers such as Toyota Motor Corp. and Nissan Motor Co. are noticeably absent among many of Japan’s once-mighty TV giants.

“Japan’s electronics makers had managed to get by through relying heavily on the domestic market, so it’s no wonder they’ve reached an impasse in line with the declining market,” said Mitsushige Akino, an analyst at Ichiyoshi Investment Management Co.

“Before, they succeeded in selling things in industrialized nations by merely copying what they were selling at home — and they didn’t take developing economies very seriously at first.”

The sector was indeed slow to tap fast-growing emerging economies such as Brazil, Russia, India, China and South Africa — the so-called BRICS nations — and has paid the price for its glacial strategic shift toward them, according to Akino.

Like a variety of domestic companies, electronics businesses are hamstrung by high labour costs in Japan and the stubbornly strong yen, which makes their exports more expensive and eats into repatriated profits. The slowing global economy, last year’s quake-tsunami disaster and weak demand in Europe, a key market for Japanese exports, are also muddying the outlook.

And last week, electronics firms pointed to yet another unwanted problem: Tokyo’s diplomatic clash with Beijing over the Senkaku Islands in the East China Sea, which resulted in a boycott of Japanese goods across mainland China after Japan nationalized three of the disputed islets.

Sharp, Sony and Panasonic have all announced massive corporate overhauls, including tens of thousands of job cuts, to rescue their bleeding balance sheets, but in the process have suffered credit downgrades and seen their share prices plummet.

Over the summer, Sony’s stock tumbled below ¥1,000 for the first time since 1980, while Panasonic said its shareholders would not be paid dividends this year — the first time in decades the company has had to resort to such a step.

Sharp, meanwhile, is putting up real estate, including its Osaka headquarters, as collateral for bank loans crucial to keeping the firm alive. This week, it ominously warned there was “material doubt” about its ability to carry on as a viable company.

That announcement was quickly followed by Fitch Ratings’ six-notch downgrading of Sharp’s credit rating, which reduced its debt to junk status, because the firm is experiencing a severe cash-flow crisis.

“We think time is running out for Sharp,” Shunsuke Tsuchiya, an analyst at Credit Suisse, commented.

Once admired for its innovation, Japan’s electronics sector now needs to urgently recalibrate with products that not only match rival offerings but outdo them.

“Japanese electronics makers used to have an outstanding advantage in terms of technology, and that is their strength,” said Keita Wakabayashi at Mito Securities in Tokyo. “But that advantage is running out.”