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Panasonic, Sharp pull up as Sony lags

by Kazuaki Nagata

Staff Writer

Vigorous streamlining efforts paid off for Panasonic Corp. and Sharp Corp., two of Japan’s three major electronics firms, in fiscal 2013, but Sony Corp. struggled to rebuild as its mainstay businesses continued to lose money.

Thanks to drastic cost-cutting efforts and a restructuring of its business portfolio, Panasonic managed to secure a net profit for the first time in three years and exhibited some signs of resiliency.

Sharp also earned its first net profit in three years, thanks to streamlining operational costs and steadily improving sales of solar cells and small and midsize LCD panels for smartphones and tablets.

However, Sony plunged into the red again as its electronics business continues to bleed money.

Industry observers said Panasonic appears to be on the right track with its focus shifting to business-to-business sales.

Although Sharp managed to secure a profit, analysts said it is on risky ground because its businesses are easily affected by outside factors.

Sony’s outlook also is unclear after spending the past few years struggling to revamp itself.

“As for Panasonic, I think the firm’s performance is coming back after suffering massive losses in fiscal 2011 and 2012,” said Hiroshi Sakai, chief analyst at SMBC Friend Research Center.

Panasonic posted staggering net losses of ¥772.2 billion in fiscal 2011 and ¥754.3 billion in 2012. But after spending hundreds of billions of yen on cost-cutting measures, such as downsizing and restructuring, the results speak for themselves.

Panasonic clearly wants to focus more on automotive- and housing-related businesses as well as the B2B sector, such as aviation electronics systems, rather than stick solely with consumer electronics.

For instance, it stopped making smartphones for the consumer market in the face of fierce competition from overseas makers like Apple and Samsung, and withdrew from manufacturing plasma display panels for televisions because rapid price drops cut too sharply into profits.

The firm is hoping to boost annual sales to ¥10 trillion from ¥7.7 trillion and operating profit to ¥350 billion from ¥305 billion, with a profit margin of 5 percent in three years.

Panasonic “has shown where it’s going in a clear way and they have been preparing some groundwork” for the next few years, said Sakai.

Like Panasonic, Sharp logged an eye-watering ¥376 billion net loss in fiscal 2011 and ¥545.3 billion in 2012. But thanks to cost-cutting and improved sales of solar cells and small and midsize LCD panels for smartphones and tablets, the firm managed to scratch out ¥11.5 billion in net profit and boosted operating profit to ¥108.5 billion, up from a negative ¥146.2 billion.

Still, industry observers say that compared with Panasonic, Sharp is not yet on the steady road to growth because its business remains on shaky ground.

“Sharp has many high-volatility businesses and I think the wave of volatility happened to be positive” in fiscal 2013, said Yasutoshi Kikuchi, a partner in the German consulting firm Roland Berger.

For instance, Sharp’s solar panel business can be easily affected by changes in energy policy, while the LCD panels depend on how well consumer handset makers do with their phones.

President Kozo Takahashi said Monday the firm is aware of the risks, so it is aiming to expand its customer base for LCD panels to mitigate it.

As for Sony, it posted a ¥128.4 billion net loss and again was unable to earn a profit from its electronics business, which has been in the red for three consecutive years. The TV segment alone has lost money for 10 years in a row, for a total of ¥790 billion.

Commenting on the huge loss from the TV section, Sony Chief Financial Officer Kenichiro Yoshida said Wednesday: “We take this figure very seriously.”

He admitted that Sony has not been quick enough to adjust its cost structure and its business model for electronics to the rapidly changing environment.

Sony said it will bring the TV business into the black in fiscal 2014 and spend ¥135 billion on structural reform, including the cost of selling its personal computer business. Yoshida said Sony wants this to be “the last time” it has to spend a massive sum on reform.

Although Sony continues to struggle, Kikuchi of Roland Berger said he views Sony’s business portfolio as actually better than Panasonic’s or Sharp’s, since its non-electronics operations, such as music, movies and financial services, are strong. Those segments earned around ¥270 billion in operating profit in fiscal 2013.

“I think it will be a key whether the company will reach a consensus to push these businesses to be their main pillar,” Kikuchi said.

That remains unclear because Sony CEO Kazuo Hirai has been keen on rebuilding the electronics business, which basically symbolizes Sony.

“The sentiment to rebuild the electronics business is understandable, but when it has been in the red for such a long time, I think many inside and outside the firm are becoming more skeptical about it,” Kikuchi said.

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