Cookers, chips and consoles: high-tech Japan’s odd parts

Last updated: November 10, 2013 1:30 pm

Cookers, chips and consoles: high-tech Japan’s odd parts

By Jennifer Thompson in Tokyo

Nostalgic portfolios highlight reluctance to restructure

Decades before the PlayStation and the Walkman saw the light of day, engineers at Sony flirted with the mundane rather than the high-tech. A primitive wooden rice cooker and electrically heated cushions were among the roll of household products manufactured by the Japanese electronics maker. Rivals such as PanasonicToshibaHitachi and Sharpfollowed suit, regarding their ability to offer a broad range of products and components as a source of strength.But as these products have largely become commoditised, Japanese electronics companies – in contrast to the slick and high-tech images they project – have failed to discard their low-tech holdings.

The result is ownership of businesses that are unprofitable and employ tens of thousands of people.

Take Hitachi’s digital media and consumer products division. The engineering and electronics conglomerate derives most of its profits from building nuclear power plants, trains and IT systems.

But it also employs more than 25,000 people making an assorted range of household goods including rice cookers, refrigerators and vacuum cleaners. Accounting for less than 10 per cent of group revenues, the unit has been lossmaking for seven out of the past eight years.

Or look at Panasonic’s chipmaking business, where it lost Y20.5bn on the back of Y184bn revenues.

Meanwhile Toshiba’s laptops, tablet devices, televisions and camcorders have not earned it a profit in the past two years.

“Most products have become largely commoditised,” says Mykola Golovko, senior consumer electronics analyst at Euromonitor. “This makes for a volatile competitive landscape where within a year or two companies can gain or lose significant shares of the market.”

Panasonic’s chipmaking business is a prime example: analysts estimate it has a global market share of less than 3 per cent. Koki Shiraishi, analyst at SMBC Nikko Securities, estimates that if Panasonic halved production at the unit that Y20bn loss would become an operating profit of Y15bn-Y20bn.

If Hitachi stopped making digital goods such as televisions but retained its small white goods business, that unit would return to the black, he adds.

In 2006, Sony called time on its decidedly non-core French restaurant chain, Maxim’s de Paris. But others have not followed suit. So why do Japanese companies cling on to these businesses?

In part, the reluctance can be explained by Japan’s protective labour laws that make any restructuring expensive.

Mark Newman, analyst at Bernstein Research, suggests that executives have postponed difficult decisions.

“Japanese technology has become increasingly uncompetitive in many areas and they’ve increasingly delayed the inevitable restructuring,” he says.

Now too there are concerns among some investors that Abenomics, the growth strategy championed by Shinzo Abe, prime minister, could further impede corporate restructuring – unlike the aftermath of the 2008 financial crisis which forced tough action.

The fear is that the recent boost provided by a weaker yen under Mr Abe’s economic reform drive could encourage others to put the brakes on restructuring as they see the value of their foreign earnings increase.

“Seven out of 10 managements say this is good, why don’t we wait and see what happens, we can restructure another day,” says one investor. “So there is a risk.”

Yet there are also signs that Japanese boards are starting to overcome their aversion to reorganisation.

Panasonic recently sold the bulk of its healthcare business – a non-core, albeit profitable business that makes blood-sugar monitoring equipment for diabetics and electronic medical record-keeping systems – to private equity group KKR.

However, the ties proved hard to cut, with the group still retaining a 20 per cent stake in the business. The group also announced earlier this year that it would stop making smartphones but remains wedded to producing basic mobile phones.

Hisao Tanaka, Toshiba’s new chief executive, singled out data storage and healthcare as the most promising growth areas for the group earlier this year. Camcorders were at the bottom of the pile.

“They’re finally making all the difficult choices,” Mr Newman says.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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