SONY, SHARP AND PANASONIC ALL REPORT SIGNIFICANT LOSSES.

Sony, Sharp and Panasonic all report significant losses. 

 Japan, once the centre of the world’s consumer electronics industry, has suffered a fresh blow to its collective corporate prestige after Panasonic warned that it expects to lose almost £6 billion this year.

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TOKYO — After years of bets gone wrong and lost opportunities, three of Japan’s consumer electronics giants are showing some signs of faltering. 

Japan is struggling to cope with the faded glory days of the late 1970s and early 1980s, when the country dominated the world of consumer electronics with color TVs and videocassette recorders, while their research labs gave birth to gadgets that would define an era: the Walkman, CD and DVD players.


Three Japanese giants are in trouble at the moment: Sony, Sharp and Panasonic. Though the three closed the first half in the fiscal year comfortably, the companies could get out of the depression with a change in leadership.

Sharp and Panasonic, along with Sony, are the most consumer-focused of Japan's large technology companies. All three have suffered as prices for flatscreen televisions and other household items plunged globally.

A strong yen and competition from lower-cost manufacturers elsewhere in Asia have turned the products that once underpinned their success into financial millstones. Last year, the three groups suffered a combined net loss of Y1.6tn -- a figure that Sharp and Panasonic will come close to matching between them this year.

"Sharp is in circumstances in which material doubt about its assumed going concern is found," the company said in a statement to the Tokyo Stock Exchange.

Sharp and Panasonic are forced to pit with combined losses exceeding 12,000 million Euros respectively.





For Sony, the new president, Kazuo Hirai, has made an aggressive plan to help the company in reaching similar heights that it has used to be. It looks like that the Japanese International wants to deliver the results immediately.

In the most dire warning, Sharp forecast on Thursday a 450 billion yen ($5.6 billion) full-year loss and warned that it had “material doubts” about its ability to survive.

On the same day, Panasonic’s shares lost a fifth of their value in Tokyo after the company forecast a 765 billion yen ($9.6 billion) annual net loss from write-downs in its solar-power, battery and mobile handset businesses.Panasonic, which has shed about 36,000 jobs, also skipped its dividend for the first time in more than six decades and cut its full-year TV sales forecast by more than a quarter to 9m sets
"Consumer needs have been changing and for too long Japanese electronics firms, like Sharp, with their size and heavy reliance on past successes, have been too slow to adapt," said Yuuki Sakurai, chief executive of Fukoku Capital Management.

And Sony, perhaps the best positioned of the companies, posted a net loss of 15.5 billion yen

($194 million) for the quarter on Thursday and warned of falling sales in almost every product it sells.

“We have a lot of great technology which we want to tap to revive and generate profit, but the company does not have that vitality,” Takashi Okuda, Sharp’s chief executive, told reporters after the company posted a net loss of 249 billion yen ($3.1 billion) for the three months to September. The loss was far larger than expected.

In a statement, the company said it had a “serious negative operating cash flow” which raised “serious doubts” about its ability to continue as a going concern, and said it was taking steps, including pay cuts, voluntary redundancies and asset sales, to generate cash flow.

Sony maintained its full-year forecast as costs have fallen, even though it expects to shift fewer gadgets than it thought only a couple of months ago. The company also kept its forecast to sell 34m smartphones.
"The fact that Sony managed to maintain profits shows management's strong will and commitment to continue cost cuts even while their product sales remain sluggish," said Takashi Hiroki, chief strategist at Monex Inc. "Compared [with] Panasonic and Sharp … Sony's earnings should get some credit.
"But we still don't see what their major earnings driver will be in the future."

While Sharp is in the most serious trouble, the three companies’ woes are similar at the core, Sharp Corp. marked the 100th anniversary of its establishment on Saturday, but the celebratory mood is likely to be dampened by the electronics maker's unprecedented financial crisis.

All three make good quality, even cutting-edge products — but so do their overseas competitors, usually at lower prices. None of the three have managed to generate the brand pizazz of Apple, or the marketing muscle of Samsung Electronics. In addition, a stubbornly strong yen continues to sap their competitiveness, while Japan’s territorial dispute with China has hurt sales there.

The scale of the losses is the result of specific missteps, from huge investments in the wrong technologies to a reluctance to exit loss-making businesses. A manufacturing bubble here in the mid-2000s — fed partly by an unusually weak currency and Americans flush with cash from rising home prices — masked continued weaknesses in their business models and spurred the companies to take big bets that backfired.

When the global financial crisis brought that boom to an end in 2008, the three were saddled with excess capacity, bloated work forces and investments that they could hardly hope to recoup. And their refusal to make a big enough departure from the ways of their glory years is now making a comeback difficult.

“Many investors are longing for reforms that will let all of the pus out,” Yuji Fujimori, technology analyst at Barclays Capital in Tokyo, said in a recent note to clients.

Sharp’s stumble, in many ways, has been the most humbling. It was the biggest beneficiary of the manufacturing bubble: from 2000 to 2007, its profits jumped 150 percent. Sharp’s high-end Aquos liquid-crystal display televisions — which it manufactured at state-of-the-art factories in Kameyama, in western Japan — were a runaway hit in the nascent flat-panel market. The spinoff Aquos cellphone topped Japanese sales rankings. Sharp’s solar batteries also sold briskly, helped by a bubble in green technologies.

The company’s success during this period seemed to validate Japan’s penchant for manufacturing their most important products in-house. In advertisements, Sharp showed off its cutting-edge factories.

"Our corporate group has booked massive second-quarter net and operating losses … and now see a serious negative operating cash flow. This raises serious doubts about [our ability] to continue as a going concern," it said in a statement on Thursday, adding that it was considering alliances with other companies.

But even before the financial crisis, analysts were warning of an impending crash in prices of flat-panel televisions, which were fast becoming commodities that cheap upstarts could emulate. In 2008, the iPhone made its debut in Japan, the end of an era for Japanese-style cellphones. Chinese upstarts were starting to flood global markets with cheap solar panels and batteries. In consumer electronics, outsourced manufacturing became the norm.

Still, Sharp did not change course. It built a new factory in Sakai, Japan, which could make 6 million large LCD panels a year — more than the size of the global market at the time. Sharp missed the smartphone wave, and its cellphone sales in Japan halved from 2007 to 2012. And in late 2011, the solar bubble burst, driving many solar power companies into bankruptcy and Sharp’s solar batteries business into the red. The unit has not turned a profit since.

"Overcoming the difficulties as a whole is the priority, and I would like to make all of us pledge our determination to transform our company into a new Sharp," Okuda was quoted as telling some 30,000 employees in Japan.

After starting as a metalworking shop, the firm became a corporate entity known as Hayakawa Metal Works Institute Co. in 1924. It was the first Japanese company to succeed in mass production of televisions in 1953.

It renamed itself Sharp in 1970 after the Ever-Ready Sharp Pencil, a mechanical pencil invented by founder Tokuji Hayakawa. Packing a scissors and compass, the multifunctional pencil became a hit in Europe and the United States as well as in Japan, helping the company expand.

Sharp began concentrating its resources on LCD displays from the late 1990s under the leadership of Katsuhiko Machida, who is now an adviser.

"We will replace all TVs sold in Japan with LCD ones by 2005," Machida said in 1998, the year he became president. Although his pledge was perceived as unrealistic at the time, according to spokeswoman Miyuki Nakayama, Sharp accelerated the spread of LCD TVs globally.

In 2005, Sharp had a leading 17.6 percent share of the worldwide LCD market and dominated Japan with a 44.3 percent share, according to research firm NPD DisplaySearch.

Now, the Kameyama factories no longer make televisions but panels for Apple’s iPhones and iPads.

Panasonic, for its part, also bet heavily on plasma televisions in 2003, pouring some 600 billion yen into a series of factories in Amagasaki, not far from Sharp’s own plant. It also bet on solar panels and rechargeable batteries, buying Sanyo in 2009.

But with plasma now a fading technology and solar power struggling, Panasonic is saddled with major losses. Last year, it announced that a factory in Amagasaki was closing, less than two years after it opened.

Kazuhiro Tsuga, who took the helm at Panasonic this year, was blunt in describing his company’s predicament. “We are among the losers in consumer electronics," he told a news conference on Wednesday. He now promises to shift the company away from money-losing televisions and gadgets.

Of the three, Sony now seems the most prescient. Its executives have preached the power of networks and content since the 1990s, building up a vast catalog of music and movies to lure users to their devices. Sony has also moved to slash costs and jobs and sell off some unprofitable businesses, refocusing the company on digital cameras and imaging technology, video games and mobile devices. This quarter, the sale of its chemical products business, which made materials for LCDs and optical discs, helped alleviate losses. Sony is now making a push into the medical field with an investment in the endoscope maker Olympus.

Internal squabbling has quashed its efforts to marry its hardware and software, however, and it refuses to abandon one of its biggest money-losers, its television business, which has bled red ink for eight consecutive years.

“We intend to hunker down and build a profitable business,” Masaru Kato, Sony’s chief financial officer, told a news conference Thursday. “And where we can, we will chase new markets.”

While financial troubles in the TV market are hardly new, Meko analyst Bob Raikes believes that the writing is on the wall for the Japanese firms - which are no longer looking like major players in the market.

“They really have to make decisions if they are going to stay in it at all frankly,” Raikes told TechEye. "They just cannot afford to chase market sure any more. The game’s up.”

The TV market has always been a tough one and extremely competitive to boot. That includes the all conquering Samsung, the most successful TV company ever in terms of market share, Raikes said.  

Despite its huge dominance in the market, even Samsung has struggled to make any real dough from it endeavours.

“Presumably people go into the TV business for the prestige of being the big consumer item in the middle of the home, because it is very difficult to make a case for going into the market for profit,” Raikes said.  “It is a long term problem.”

The outlook for Samsung is not so bleak, steaming ahead with OLED production, and leading just about everywhere else.

But with both Sony and Panasonic reporting massive losses the days of them leading in the industry are fast disappearing, and alongside Sharp, they must re-prioritise in order to claw back into the black.

According to Raikes they have been hit by a “triple whammy” of problems which have hampered sales. First of all, Sony is not producing flat panel displays, and Panasonic is producing the right type. Nearly all of the cost comes from the flat panel, and if a firm is not producing their own then they are going to struggle to make money.

Sony “missed the boat” by exiting the flat panel production too early. While Sony was able to charge a premium for its Trinitrons in the past, Raikes points out it can longer differentiate with its screens, and is instead handing cash over to the likes of Samsung to build them.

Panasonic might produce its own panels, but it has bet on the wrong horse after banking on plasma screens.  Panasonic does have its own supply chain in plasma screens, but it is now producing much more than anyone wants to buy.  

“You have to make bets when you are picking technologies, and they picked the wrong one,” Raikes said.

The second major problem is the strong yen, which has wreaked havoc with Japanese business for some time now.  For Panasonic, basing its production in Japan means costs are very high.

Competitors have had more appealing balance sheets from buying in from Taiwan, for example, and leveraging cheap components and labour. 

“Too much of their costs are in yen," Raikes said. "It is a problem for Japan inc, just look at the problems for most of the Japanese consumer electronics companies.  Companies like Hitachi  which is doing well on a profitable basis are almost out of consumer electronics because it is just too hard with the yen as it is.”

The domestic Japanese market has collapsed in recent years, thanks to a variety of factors.

“You had a real super-boom in the Japanese TV market in 2010, and into the first quarter of 2011,” Raikes said.

This was due to both the analogue switch off and government subsidies. An abrupt stop came with the end of the subsidies, while the need for replacements vanished when the analogue signal was turned off.   With the tsunami hitting Japan that year, the situation was made even worse.

“All of that combined just absolutely decimated the TV market in Japan,” Raikes said.

---- A CLEAR FIRST AND NOT LAST SIGN OF THE REVENGE OF THE CRT DEATH ---

FRANK SHARP.

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