Japan electronics firms struggle; Sony suffers TV relapse as peers change channel

Updated: Friday November 1, 2013 MYT 8:25:17 AM

Japan electronics firms struggle

TOKYO: Japan’s top electronics firms have reported mixed earnings, with Sony slashing its full-year profit outlook while hard-hit Panasonic turned in strong earnings and boosted its annual forecast. The firms have undergone painful restructuring to stem years of losses as they struggle to keep up in the low-margin television business, while rivals including Apple and South Korea’s Samsung surge ahead in the lucrative smartphone sector.Once world-beating Sony booked a net loss of 15.8 billion yen (US$160mil) in April-September and cut its forecast for the whole year to March by 40%, blaming dwindling sales of digital cameras, personal computers and televisions.

However, that was still an improvement on the 40.1 billion yen loss in the same period last year.

The country’s digital camera makers have suffered as consumers increasingly turn to smartphones to snap pictures, while Sony also said its film business turned in a weaker-than-expected performance.

Company chief Kazuo Hirai has shrugged off pleas to abandon the television unit altogether, while the firm has also turned down a call by a US hedge fund boss to spin off 20% of its entertainment arm to boost profits.

In an interview with foreign media this month, Hirai reaffirmed his plan to keep the entertainment business within the vast conglomerate, calling it “a very vital and important part of Sony Group’s overall strategy.”

“It is one of the key pillars of our future growth,” he added.

The company is banking on strong holiday sales of its PlayStation 4 games console as rivals Nintendo and Microsoft also jockey for control of a sector worth US$44bil annually.

Panasonic, however, said dramatic corporate overhauls and a sharply weaker yen – which makes exporters’ goods cheaper overseas – were key factors in helping it crawl back from the abyss after several quarters of swingeing losses.

The firm said it had swung back to profit for the six months to September and doubled its full-year forecast – after combined losses topping US$15bil in the past two fiscal years.

The company said it earned a 169.3 billion yen (US$1.72bil) net profit in April-September, reversing a net loss of 685.2 billion yen a year earlier. It also said it was on track to earn a 100 billion yen net profit in the year to March.

However, Koki Shiraishi, analyst at SMBC Nikko Securities in Tokyo, warned: “The impact of a weak yen will start disappearing in the second half of the fiscal year, which will cut their profit. There are still tough times ahead for Japanese electronics makers.”

Sharp, meanwhile, said its first-half net loss shrank dramatically to US$44mil, crediting the improvement to strong demand for its liquid crystal display panels used in smartphones and tablet computers as well as solar panels.

It also said it had benefited from cutting labour and other fixed costs while reining in capital spending. – AFP

Updated: Friday November 1, 2013 MYT 12:18:45 PM

Sony suffers TV relapse as peers change channel

TOKYO: Sony Corp CEO Kazuo Hirai’s determination to stick to the consumer electronics that made the company’s fame will be put to the test in the months ahead as domestic rivals step up a shift to more profitable industrial technology.

On Thursday, the home of gadgets from the Walkman music player to the Cybershot camera warned it won’t meet previous full-year profit targets after sliding to a net loss of 19.3 billion yen (US$197mil) for July to September.

Its TV operation relapsed into the red on weak sales.

Meanwhile Panasonic Corp raised its earnings forecast on strong sales of products like batteries to industry clients, and Sharp Corp bounced to its first quarterly net profit in two years, helped by sales of solar panels.

The big three in Japan’s electronics have been forced to review their strategy choices after racking up combined aggregate net losses of about US$38bil in the five years up to March this year.

While they struggled to rein in fixed costs in Japanese manufacturing that eat away at revenue, nimbler foreign companies like Apple Inc, Samsung Electronics Co and Asian rivals grew richer and stronger.

Since Chief Executive Kazuo Hirai took the helm last year, Sony has promised a rebound in hardware with a three-pronged strategy focused on mobile devices, imaging technology and gaming. But the below-expectations performance in the second quarter stirred doubts about how Sony can anchor a turnaround by reviving fervour among consumers who now covet goods like Apple’s iPad and Samsung’s Galaxy smartphone.

“I still cannot see any fundamental and believable strategy for the rebirth of Sony’s electronics business,” said Makoto Kikuchi, CEO of Myojo Asset Management based in Tokyo, speaking after Sony announced its earnings.

“On the other hand Panasonic, which is shifting its business away from consumer electronics, is reporting better-than-expected results. The contrast is like night and day.”

Just two of Sony’s units, music and financial services, boosted operating earnings compared with a year ago while its movie business also lost money. The Tokyo-based company has come under pressure from major shareholder and hedge fund manager Daniel Loeb to generate more value from its entertainment division – pressure that could intensify after the weak earnings.

Officials representing Loeb weren’t immediately available to comment.

Sony shares sank 12% in Tokyo trading on Friday morning, heading for their biggest one-day percentage drop since October 2008.

STRATEGIC CHOICES

In contrast, Osaka-based Panasonic raised its forecast for operating profit in the year through March by 8% to 270 billion yen, more than had been expected, on strong sales of its automotive systems and eco-friendly technology.

Panasonic shares rose as much as 5.9%, hitting a 2½-year high.

At Sharp, a supplier of panels for the iPhone, a surprise net profit of 13.6 billion yen in its fiscal second quarter was helped by strong demand for solar cells and a weaker yen. While it is still struggling to shore up its finances, recently issuing US$1.7bil in new shares, it’s a significant turnaround from a 545 billion yen net loss a year earlier.

Sharp’s shares rose 2.8% on Friday morning.

Panasonic’s earnings statement came amid an appraisal of its strategic choices. A day after saying it would ramp up supply of lithium ion batteries to US carmaker Tesla Motors Inc to nearly 2 billion cells in the four years to 2017, Panasonic formally confirmed it will exit plasma TV manufacturing.

Its TV and panel division lost 25.6 billion yen in the second quarter, a wider loss than at Sony. Mopping up the red ink comes at a cost, however: Panasonic raised its restructuring budget for this year to 170 billion yen from a previous figure of 120 billion yen.

At Sony, the commitment to build a healthy TV business lives on. On Thursday, it said its TV operation flipped from a 5.2 billion yen operating profit in April-June – its first quarterly profit in three years – to a 9.3 billion yen operating loss.

The smartphone business at Sony was one of few to show signs of holding up in the latest quarter. Sony said it still expects to sell 42 million smartphones this fiscal year, unchanged from previous guidance, after selling 10 million in the three months between July to September.

But with weak sales of video cameras and cameras, as well as a slump in personal computers that has it racing to restructure its Vaio division, the pillars of Hirai’s future development strategy look weak right now.

“We plan to revise our product, sales and manufacturing strategy for our Vaio unit. We realise that we don’t have much time so we plan to implement our decisions in the next fiscal year,” Shiro Kambe, Sony’s senior vice president, told reporters.

Sony is still aiming to get its electronics division in the black this year, although Chief Financial Officer Masaru Kato said it would likely miss a previous target of 100 billion yen in operating profit.

One business for which Sony does retain high hopes is its video games divisions.

There have been signs of a strong debut next month in the US and other key markets for Sony’s new PlayStation 4 game console, based on preorders. As with previous consoles, development and rollout costs have been steep, although Sony has pledged to turn a profit much faster than the four years it took for the previous iteration of the console to make money.

“I think we’re at a stage where they really should be reconsidering their (three-pronged) strategy but the company is not going there yet,” said Myojo Asset’s Kikuchi.