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Japanese consumer electronics firms still in limbo

Posted: 05 Nov 2013 ?? ?Print Version ?Bookmark and Share

Keywords:consumer electronics? TV? smartphone?

Sony and Panasonic have recently issued contrasting full-year financial forecasts that drove financial analysts into churning out their respective understanding of what the two companies and, consequently, the Japanese consumer electronics industry, are faced with. Sony warned that the company will not meet previous full-year profit targets, after sliding to a net loss of $197 million for July to September. Sony now sees its full-year operating profit falling 26 per cent to $1.73 billion. In contrast, Panasonic expects operating profit to climb 68 per cent in the fiscal year ending March 31. It sees net profit coming in at $1.02 billion, compared with a year-earlier loss of $7.68 billion.

However, these questions still remain. Are Japanese consumer electronics companies on the mend? Is the worst over? A more pressing question the financial community keeps asking is how soon Japanese electronics giants such as Sony and Panasonic will get out of the CE business and turn themselves into something else.

Panasonic's turnaround is a result of a round of heavy restructuring. The Japanese company pulled out of plasma TVs and smartphones. The company also sold assets, agreeing recently to the sale of 80 per cent of its healthcare unit to U.S. buyout firm KKR & Co for $1.68 billion.

Meanwhile, Panasonic claims that sales of residential and automotive electronics are growing. The firm revealed that it would sharply increase its supply of lithium batteries to Tesla to nearly two billion cells in the four years to 2017, a huge jump from the 200 million cells it is supposed to have provided over the two years to this December.

Many analysts attribute Panasonic's better-than-expected results to the shift in the company's business away from consumer electronics.

In contrast, many analysts blamed Sony's falling profit outlook on its TV business, which is now back in the red. Sony said Thursday that its TV business went back into a $95 million operating loss, after the company's TV division showed its first quarterly profit in three years in April-June with a $53 million operating profit.

The weak sales of video cameras and PCs are also hurting Sony. Sony's smartphone business, however, is believed to be holding up in the latest quarter. According to the Japanese company, it still expects to sell 42 million smartphones this fiscal year, unchanged from previous guidance. The company sold 10 million in the three months between July and September.

Meanwhile, Sony is still holding high hopes for its video games business. The company is scheduled to launch new PlayStation 4 game consoles in November.

A popular view of Sony and Panasonic says that those who decisively ditch the TV business sooner would restore the health of their business more quickly.

Many are also calling into question Sony CEO Kazuo Hirai's so-called "three-pronged strategy" focused on mobile devices, imaging technology and gaming.

But not everyone agrees with that analysis.

Richard Windsor, chartered financial analyst and a blogger at Radio Free Mobile, posted Friday a counter-argument, saying Hirai's three-pronged strategy is "absolutely bang-on." But Windsor also noted that "the real question is how long does he have to realise that vision or will impatient shareholders sell the company out from underneath him?"

Windsor described Hirai's vision as "to turn Sony from a lumbering conglomerate into an integrated ecosystem play with both hardware and software." He said, "This is the right vision but it is incredibly difficult to execute and it will take a long time in the best instance."

Windsor holds the view that with its assets from electronics to media, "Sony is the only Japanese company that has a chance being relevant in the digital ecosystem world."

However, it is true that beyond the company's weak TV, imaging and PC sales, Sony's Q2 loss was mainly on its movie business, which posted an operating loss of $181 million in the quarter, reversing from a profit of $80 million a year earlier. Sony cited disappointing box office performance of some of its films.

While Windsor brushed off the big loss in the movie business as "bad luck," Sony's movie and music businesses will come under scrutiny once again, as hedge-fund investor Daniel Loeb earlier this year called for a spinoff of the entertainment division through an initial public offering.

As for Panasonic, it remains to be seen if its non-consumer electronics business (automotive, battery, residential, industrial and others) will keep growing over the next few years.

- Junko Yoshida
??EE Times

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