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Monday, 22 September 2014

Death by consumption

Japan risks consumer electronics death spiral

“We are among the losers in consumer electronics.” That frank assessment by Panasonic president Kazuhiro Tsuga sums up the state of Japan’s once world-beating electronics industry. The economy is partly to blame for slumping demand for Japanese gadgets, but so are rivals like Apple and Samsung. The worry is that the financial squeeze undermines product development, leaving Japan ever further behind.

Quarterly earnings, released this week, revealed big losses and low expectations. Panasonic - Japan’s largest corporate employer – delivered the biggest shock, knocking 7 percent off its full-year revenue forecast and predicting a net loss of 765 billion yen ($9.5 billion). Much of that is due to writing off intangible assets, like goodwill, that do not affect the company’s cash position. But the prospect of a fourth loss in five years also forced it to take a less optimistic view of the value of accumulated tax losses. Cancelling its dividend for the first time in sixty years is another signal of Panasonic’s predicament.

It is not alone. Although Sony stuck to its full-year forecast, the electronics group is heading for a second year of losses. And while revenue was up slightly in the six months to the end of September, it expects to sell fewer flat-screen televisions, digital cameras and hand-held PSP consoles this year that previously estimated.

Both Sony and Panasonic are still in better shape than Sharp, which openly admits it may not be able to survive as a going concern. Nevertheless, it’s hard to see these companies coming up with the next generation of world-beating gadgets. In the rush to preserve cash, the temptation is to skimp on investment: Panasonic spent 7 percent less on research and development in the six months to September than in the same period of 2011. And though Sony expects R&D to rise by 8 percent this year to 470 billion yen, its budget is dwarfed by that of South Korea’s Samsung.

There’s more to innovation than just spraying cash around: Apple spends a smaller proportion of its revenue on R&D than Sony. Still, the prospect of more losses and further restructuring don’t leave much hope for a successful turnaround.

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Sharp Corp warned on Nov. 1 that it might not be able to survive on its own, as the struggling Japanese TV maker doubled its full-year net loss forecast to $5.6 billion and said it was considering alliances with other companies.

“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,” Sharp said.

Sony Corp meanwhile reported a small operating profit for the three months to the end of September and maintained its full-year forecast of $1.63 billion. But it said it expects to sell fewer of its hand-held PSP and Vita consoles than previously estimated. It also cut forecasts for sales of TV sets and compact digital cameras, but kept its PlayStation home console sales estimate at 16 million.

A day earlier Panasonic Corp said it would lose almost $10 billion this business year as a result of writing down goodwill and assets in its mobile and energy units. Panasonic also skipped its dividend for the first time in more than six decades.

By 1130 JST on Nov. 2 Sharp shares were down 5 percent at 161 yen. Shares in Sony Corp were up 3 percent at 943 yen. Shares in Panasonic, which slumped by nearly a fifth on Nov. 1, were largely unchanged at 411 yen.

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