As TVs Lose Lustre, Panasonic Pushes Lower-Key Products

As TVs Lose Lustre, Panasonic Pushes Lower-Key Products

President Tsuga Emphasizes Auto Parts, Solar Panels and Airplane Entertainment Systems

KANA INAGAKI

Feb. 3, 2014 8:21 p.m. ET

As global competition rises among television makers, Panasonic is changing the focus of its once thrivingtelevision business. The WSJ’s Deborah Kan speaks to Panasonic’s President Kazuhiro Tsuga about the company’s change of strategy.

As Panasonic Corp.’s 6752.TO -5.44% vaunted television business fades, a string of lesser-known niche businesses are rising to take its place.

These businesses—which include auto parts, solar panels and airplane entertainment systems—have been quietly building market share for decades. And unlike many of Panasonic’s traditional consumer-electronics products, they are thriving: The company expects their combined revenue to double that of consumer electronics in four years.

Now, executives say, Panasonic is ready to put these businesses, which have remained largely in the shadows, front and center.

“Our image of Panasonic as plasma TV is dominating. We have to change that image,” President Kazuhiro Tsuga said in an interview on the sidelines of the Consumer Electronics Show in Las Vegas in January. Under Mr. Tsuga, the company has pulled out of manufacturing plasma display panels, a business that has been in the red since 2009, while bringing more attention to lower-key products.

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At CES, Panasonic devoted a sizable chunk of its booth display to in-car audio and airplane entertainment systems, alongside its lineup of new ultra high-definition televisions.

For the six months through September, Panasonic’s consumer segments—including TVs, digital cameras and household appliances—accounted for 37% of total sales, while housing and auto-parts businesses (which includes solar panels, car navigation systems and lithium ion batteries) made up about 60%.

Analysts expect strong automotive and housing businesses to be the key profit drivers when the company announces third quarter figures later Tuesday.

Still, the gap left by sliding electronics demand will take time to fill, executives and analysts say. The company’s revenue target for this year—¥7.4 trillion ($70 billion) through March—is still nearly 20% below the fiscal 2007 level before the global financial crisis. Flat-panel TV sales, for example, are now roughly half of the ¥1 trillion logged five years ago.

Analysts say Panasonic’s success hinges on its ability to continue to make a nimble transition away from just making hardware for consumers to providing software-based technology that connects cars, houses and planes via the Web.

Panasonic executives say the auto, solar and aviation businesses have built their global presence by leveraging the company’s overall brand strength and its manufacturing resources—as well as by adopting consumer-electronics technologies for their own products.

“We are in a unique position, knowing the consumers’ taste,” Mr. Tsuga said.

Increasingly Mr. Tsuga is bringing the company’s little-known aviation business to the forefront, often citing it as one of Panasonic’s three healthier businesses next to auto and housing, which includes solar panels.

The aviation business—which is part of its electronics segment because of the overlap in technologies—dates back to the late 1970s when it began making speakers for airlines. In 2011, Panasonic had the top share of 52% in the global market for in-flight entertainment, followed by French electronics system maker Thales SA’s 17%, according to consulting firm Frost & Sullivan. More recently, industry watchers say Panasonic’s share is over 70%.

“We’re kind of like a private bank. Our premium customers know us very well, but we just didn’t want too much attention in general,” said Paul Margis, chief executive of Panasonic Avionics, in a rare appearance before the media during CES.

Sales from aviation, lumped together with Panasonic’s TV, digital camera and tablet businesses, is still a tiny portion of the company’s overall revenue, which totals over $70 billion. But after taking over as president in 2012, Mr. Tsuga realized that it was a “a very good, long-term business,” Mr. Margis said.

Frost & Sullivan estimates Panasonic’s global in-flight entertainment revenue will increase to $5.3 billion in 2020 from $1.8 billion in 2011.

Panasonic also has a strong foothold in an expanding market for auto products. The global market for in-car entertainment systems including portable navigation devices is expected to grow to $45 billion by 2018, compared with $35 billion in 2012, according to IHS. Panasonic is a top supplier of these systems, with revenue of nearly $4 billion and a 12.1% share in the global market.

But it is also a field where global technology giants such as Google Inc., Apple Inc. and Samsung Electronics Co. are pouring in. “The competition will be higher. There is a lot of movement to get expertise in software,” said Luca de Ambroggi, principal analyst for automotive infotainment at IHS.

Mr. Tsuga argues that the company’s long-standing ties, for example with global auto giants dating back to the 1950s, will help Panasonic keep its edge even as new players flood the market. “The hurdle or barrier to entering the car business isn’t so low,” he said.

Panasonic’s transition reflects a general trend among Japan’s tech companies, from Toshiba Corp. to Hitachi Ltd., to expand their reach into green technologies, infrastructure and medical devices to fill the void left by falling sales in consumer-electronics products.

Panasonic’s continuing growth in auto, aviation and solar, analysts say, will be tied to the company’s ability to deliver online services that will allow customers on planes and cars to stay connected to smartphones and tablets, and enjoy contents that can be delivered via the Web.

“That connectivity market is where the future growth is really going to start to get big. It does force the big companies to become more nimble and flexible,” said Michael Planey, a product-development consultant for the in-flight entertainment industry who doesn’t have ties with Panasonic.

To help fill weak spots in software development, Mr. Tsuga has said he would carry out acquisitions as the company aims to double revenue in both housing and auto businesses to ¥2 trillion by 2018.

It already bought, for example, Berlin-based Aupeo GmbH for an undisclosed price last April to get hold of its content and audio streaming technology. By 2018, Panasonic will also aim to achieve a “connected airplane” that will allow airlines to monitor passenger usage and maintain the plane in a “remote-control fashion,” Mr. Margis said.

At the Las Vegas show, the company also demonstrated its latest cloud technology using prototypes of two devices—shaped in the form of a pendant and a wristband—that can be worn to give voice commands using the cloud to turn on the TV, the car or to lock the door when leaving the house. Panasonic officials say they will aim to bring the cloud technology outside of houses and into cars, planes and medical devices.

Still, Mr. Tsuga admits the industry changes are occurring quickly, as its hardware becomes more linked to the Web or a cloud service.

“The software can progress more rapidly than the hardwares progress. That is happening for sure,” he said.

 

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 (www.heroinnovator.com), 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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