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Tuesday, April 3, 2012

Struggling electronics makers hit reset button


By MIE SAKAMOTO
Kyodo

Some of the nation's biggest electronics firms are seeking fresh starts this spring under new presidents brought in to tackle the difficult task of re-establishing their slumping TV businesses in the competitive global market.

Sony Corp., now headed by Executive Deputy President Kazuo Hirai, who replaced Howard Stringer on Sunday, has already begun taking steps to turn around its ailing TV business, which is likely to post its eighth consecutive year in the red.

The company has terminated its joint venture with South Korea's Samsung Electronics Co. for producing liquid crystal displays for TVs and announced it will unload its noncore chemical business by the end of the year.

But Hirai recognizes that simply cutting fixed costs is not enough, as he said in an interview in February. "Cutting costs will not improve everything," he said. "We have to release products that are appreciated by users."

For Sony, which once captivated the world with innovative products like the Walkman portable music player, the key to its revival will be whether it can launch products with an edge, said Kazuharu Miura, senior analyst at SMBC Nikko Securities Inc.

"If the company goes after market share, it has to release products without an edge, merely appealing to the mass market," Miura said, adding that Sony now needs to launch products that are valued highly by a select range of customers.

However, Sony should not be satisfied with just launching attractive products, Miura says, pointing out that the ability of its sales force to grab consumers appears to have weakened, contributing to the slump in its mainstay TV business.

"Even when innovative products are launched, customers have no way of finding out what their characteristics are," said Miura. "The company needs to let customers recognize them and to lure them into purchasing the products. . . . That is what marketing is for."

As for Panasonic Corp., which expects to post its biggest-ever group net loss of ¥780 billion for this business year ending March 31, rebuilding the TV business will also be a pressing task for Senior Managing Director Kazuhiro Tsuga, who will be promoted to president in June.

Like Sony, the key for the company will be whether it can build on its bitter experience in TVs, hurt by the strong yen and cutthroat competition with South Korean rivals.

It is appropriate for the company to focus on its energy-related products such as rechargeable batteries and solar panels, but it should not chase market share at the expense of profitability in this segment, as it did in the TV business, Miura said.

"What is important is to create a business structure which brings very high profitability, even if the company is not in a top position in sales," he added.

While Sony and Panasonic have started moving away from manufacturing display panels on their own for TV sets, Sharp Corp. has decided to team up with Taiwan's Hon Hai Precision Industry Co., better known as Foxconn, the world's biggest contract supplier of electronics products.

Sharp, which projects a record net loss of ¥290 billion for the year ended March 31, will accept an investment from Hon Hai and sell a stake of around 46.5 percent in its LCD panel-making unit in Sakai, Osaka. Hon Hai will buy LCD panels made there.

"By integrating our technology of developing LCD panels and Hon Hai group's manufacturing capacity . . . we can procure main components stably and step up cost cuts," said Sharp President-nominee Takashi Okuda at a recent news conference. Okuda replaced Mikio Katayama Sunday.

Sharp's decision was welcomed by the stock market. Its stock jumped 15.2 percent to ¥570 on Wednesday at the Tokyo Stock Exchange, posting the maximum allowable single-day gain.

Yoshio Takahashi, an analyst at Moody's Japan, called the decision "positive," saying it could lead to raising the plant's operating rate as Sharp will have a partner to sell panels in large lots to help cut operating losses in its large-size LCD panel business.

Appearing in a video message at the press conference, Hon Hai chief Terry Gou indicated that the role of Japan's electronics manufacturers has begun to change.

The synergy of the alliance "will send a signal to the world that Japan is moving away from its past role as a manufacturer of electronic components and consumer electronics and is now taking on a new leading role in high technology R&D and in building international brand recognition," he said.

Meanwhile, as Hon Hai supplies LCD panels to a wide range of manufacturers, how to differentiate products is likely to become even more critical if each company is to compete in the global market, analysts said.

Takahashi of Moody's said the key for success would be whether they can roll out TVs with a technology that is recognizable at a glance, like a high-definition organic light emitting display or some other technology that drastically changes the concept of TVs.

"It would not be an advantage if technology is elusive," he said. "It is important for them to create convenient and attractive products by connecting hardware and software technology as Apple Inc. is said to have done."



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