Osaka - Sunday, February 26, 2012
As briefly explained in the previous article Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers many, Japanese global electronic companies have been under-performing, while there have been some others that have been performing reasonably well.
In this article, the author would like to explain why there are such winners and losers among Japanese global electronic companies under the same tough business environment including historic high yen, the Japan Disaster and the flood in Thailand, based on an article of Nikkei, Japan’s leading newspaper specialized in business and economy, that was issued on February 25.
1. Why are there losers?
1) Who are the losers?
The losers are Panasonic, Sony and Sharp that heavily rely on non-profitable flat panel TV business, as explained in the previous article Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers. Now Nikkei reports that the total loss of Panasonic and Sony for the fiscal year ending March 2012 is to reach as much as 1 trillion yen.
2) Why is the flat panel TV business unprofitable?
The main reason is the accelerated speed of digital technologies becoming obsolete combined with market entry by Chinese players. The price of flat panel TV sets has drastically dropped and also the demand of LCD panels has become excessive. This has completely changed “the rule of winning in the market = the market player that continued proactive investment until the competitors drop out is to become the market leader is to obtain profit”.
Today, the market leader with #1 market share in digital technology (e.g. flat panel TV business) can necessarily be profitable. In the case of LCD panel market for flat panel TVs with market size of 6 trillion yen per year, #1 and #2 global players Samsung and LG Display went in red for the fiscal year ending December 2011. The total market share of the two companies is above 50% but the total operating loss of the two companies for the business is as much as 120 billion yen.
2. Why are there winners?
1) Who are the winners?
The winners are Mitsubishi Electric and Hitachi that have managed to withdraw from unprofitable businesses to focus on their strengths, leading to successful recovery to mark net profit of more than 100 billion yen.
Mitsubishi Electric made withdrawal one after the after from PC, DRAM, system LSI and mobile phone businesses that had been unprofitable to shift their business to more profitable ones such as factory automation equipments although such businesses might be less known and popular to the general public.
Hitachi separated fluctuating businesses of semiconductor and flat panel businesses to focus on social infrastructure businesses that the company is strong in. As a result, their total net profit for 2011 and 2012 is estimated to reach 438.8 billion when the company had been in red from 2000 to 2010.
2) Why NEC that also withdrew from unprofitable businesses not a winner?
It is all about timing and speed.
It is true that NEC avoided fluctuating businesses such as plasma and LCD panels, semiconductors and PCs and their decisions and actions seem to be quite similar to those of Hitachi. However their revenue for this year is to decrease by 40% from its peak and they are estimated to be in the red for 2 consecutive years.
What NEC is different from Hitachi is the speed and timing of their decision and actions. Their withdrawal from semiconductor which had been their burden with much investment was slow. As a result, the company could not strengthen their telecommunication and IT services in a timely manner. For this reason, the company currently lack in businesses that could drive their growth.
3. How are losers trying to recover and grow their business again?
They are trying to do so by leveraging external opportunities and players and for this reason they have been proactive in M&A and/or collaboration with other companies to create business growth.
Sony is eager to invest in Olympus because they are very much interested in the medical equipment business of Olympus. Sony aims to make it as one of their pillar of their future growth.
Panasonic acquired Sanyo last year even if the company needs to go through brand cost depreciation that requires approximately 250 billion yen in order to acquire technologies inevitable for development of green, environmentally-friendly cities green cars that Panasonic was desperate. Panasonic plans to make environment related business as their growth driver. For this reason, they have recently been discussing collaboration possibilities with trading companies in promising businesses in new energy.
4. What are the author’s final thoughts?
Careful selection and focus on businesses based on their mission leveraging on core competencies is the basics of strategy; however in reality, successful strategy development and execution in a timely manner in today’s drastically changing environment is not easy.
Such successful strategy execution usually requires timely withdrawal from unprofitable and/or obsolete businesses and shifting to promising businesses leveraging their core competencies. This is inevitable for business portfolio optimization which is a challenge.
One main reason of difficulty in withdrawing from a business is the extreme difficulty to “abandon” past success. In the case of Panasonic and Sony, TV business had long been the core and driver of their business, symbolizing their company.
It must be so difficult for them to shift their focus from TV business to others similarly to what GE managed to do so withdrawing from consumer electronics to financial services, medical and infrastructure businesses. However, they would need to change their mindset and their business portfolio immediately for sustainability and growth.
Resources:-
What determines winners and losers of Japanese global electronic companies is whether they can withdraw from unprofitable business and shift to promising businesses based on their mission leveraging their core competencies in a timely manner or not. Careful selection and focus on businesses usually requires abandoning successful past which is a challenge. But companies need to change their mindset to do so to optimize their business portfolio adapting to today’s changing business environment is necessary for survival and sustainable growth.
2012年2月4日土曜日
Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers
Osaka - Saturday, February 4, 2012
Nikkei, Japan’s leading newspaper specialized in business and economy, reported today that announcement of financial performance of Japanese listed companies April – December 2011 (consolidated base) is worse than the original estimation, and that the profit for fiscal year ending March 2012 is to drop by 21% from the previous year.
This mostly attributes to high yen, flood in Thailand and the EU financial crisis, which are all negative factors for export-oriented industries.
Having said that, companies driven by domestic demand such as telecommunications and consumer goods are strong. Trading companies have recorded the highest profit in the history attributing to strong business in natural resources and energy.
It seems that there is a shift in the industries/companies that drives Japanese economies.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 743 listed companies (excluding financial and new companies) that have made announcements of financial performance for April – December 2011 by February 3.
2. What was the conclusion?
It is estimated that the decrease in profit for manufacturing companies from the previous year tops to as much as 36%, when the original estimation was 10%. However, for non-manufacturing companies it would increase by 2%.
1) Who are the losers?
They are consumer electronics companies that heavily rely on flat panel TV in particular, such as Panasonic, Sony and Sharp. The total losses of the three companies are to reach as much as 965 billion yen.
Panasonic alone announced that they will be in the negative by as much as 780 billion yen for the fiscal year ending in March 2012 when it was in the positive by 74 billion yen for the fiscal year ending in March 2011. The loss is the greatest in the history for Japanese manufacturing companies. Although the estimation includes approximately 760 billion yen of structural reform cost such as impairment loss attributing to revenue deterioration from acquiring Sanyo, it is clear that the company was hard hit by the external negative environmental factors and that they need to change their strategy.
2) Who are the winners?
They are non-manufacturing companies that mostly rely on domestic demand and resource business.
For example, KDDI, a leading telecommunications company, is estimated to record the greatest profit in the history attributing to strong business in smart phones. Also trading companies whose resource related businesses are strong are increasing their profit to record the highest in the history.
3) What are the implications?
The Japanese companies used to be led by export-oriented manufacturing companies of automobiles and electronics but the recent estimation of the financial result indicates that the industries/companies that drive the Japanese economy are shifting from such companies to non-manufacturing companies that are driven by domestic demand.
3. What are the reasons for ill performance of manufacturing companies?
They are mainly external environmental factors.
1) Highest yen in the history
With the unbelievable high yen, it is quite possible that the total decrease of profit for all listed companies is to reach as much as 1 billion yen for the fiscal year ending March 2012. Automobiles and electronics are the mostly hard hit companies.
2) Flood in Thailand
Many export-oriented companies are hard hit by the flood of Thailand because many of them have key factories in Thailand. For example, the negative impact of the flood is estimated to be more than 100 billion yen for Honda and Toyota respectively.
3) EU financial crisis
Negative impact of the EU financial crisis cannot be ignored, either. For example, the printer business of Ricoh is staggering because companies operating in EU are cutting down on costs due to depression. For this reason, Ricoh is to fall to red for the first time in history.
Resources:-
The recent analysis of the financial performance of Japanese listed companies implies that the industries/companies that drives Japanese economy is shifting from export-oriented manufacturing companies such as automobile and electronics to non-manufacturing companies that rely mostly on domestic demand and resource business. The reasons of ill-performance of manufacturing companies are mostly of external environmental factors including historic high yen, flood in Thailand and EU financial crisis. For electronics companies that heavily rely on flat TV business, their strategy is also a possible factor.
Nikkei, Japan’s leading newspaper specialized in business and economy, reported today that announcement of financial performance of Japanese listed companies April – December 2011 (consolidated base) is worse than the original estimation, and that the profit for fiscal year ending March 2012 is to drop by 21% from the previous year.
This mostly attributes to high yen, flood in Thailand and the EU financial crisis, which are all negative factors for export-oriented industries.
Having said that, companies driven by domestic demand such as telecommunications and consumer goods are strong. Trading companies have recorded the highest profit in the history attributing to strong business in natural resources and energy.
It seems that there is a shift in the industries/companies that drives Japanese economies.
1. How did Nikkei come to the conclusion?
Nikkei collected and analyzed financial data of 743 listed companies (excluding financial and new companies) that have made announcements of financial performance for April – December 2011 by February 3.
2. What was the conclusion?
It is estimated that the decrease in profit for manufacturing companies from the previous year tops to as much as 36%, when the original estimation was 10%. However, for non-manufacturing companies it would increase by 2%.
1) Who are the losers?
They are consumer electronics companies that heavily rely on flat panel TV in particular, such as Panasonic, Sony and Sharp. The total losses of the three companies are to reach as much as 965 billion yen.
Panasonic alone announced that they will be in the negative by as much as 780 billion yen for the fiscal year ending in March 2012 when it was in the positive by 74 billion yen for the fiscal year ending in March 2011. The loss is the greatest in the history for Japanese manufacturing companies. Although the estimation includes approximately 760 billion yen of structural reform cost such as impairment loss attributing to revenue deterioration from acquiring Sanyo, it is clear that the company was hard hit by the external negative environmental factors and that they need to change their strategy.
2) Who are the winners?
They are non-manufacturing companies that mostly rely on domestic demand and resource business.
For example, KDDI, a leading telecommunications company, is estimated to record the greatest profit in the history attributing to strong business in smart phones. Also trading companies whose resource related businesses are strong are increasing their profit to record the highest in the history.
3) What are the implications?
The Japanese companies used to be led by export-oriented manufacturing companies of automobiles and electronics but the recent estimation of the financial result indicates that the industries/companies that drive the Japanese economy are shifting from such companies to non-manufacturing companies that are driven by domestic demand.
3. What are the reasons for ill performance of manufacturing companies?
They are mainly external environmental factors.
1) Highest yen in the history
With the unbelievable high yen, it is quite possible that the total decrease of profit for all listed companies is to reach as much as 1 billion yen for the fiscal year ending March 2012. Automobiles and electronics are the mostly hard hit companies.
2) Flood in Thailand
Many export-oriented companies are hard hit by the flood of Thailand because many of them have key factories in Thailand. For example, the negative impact of the flood is estimated to be more than 100 billion yen for Honda and Toyota respectively.
3) EU financial crisis
Negative impact of the EU financial crisis cannot be ignored, either. For example, the printer business of Ricoh is staggering because companies operating in EU are cutting down on costs due to depression. For this reason, Ricoh is to fall to red for the first time in history.
Resources:-
The recent analysis of the financial performance of Japanese listed companies implies that the industries/companies that drives Japanese economy is shifting from export-oriented manufacturing companies such as automobile and electronics to non-manufacturing companies that rely mostly on domestic demand and resource business. The reasons of ill-performance of manufacturing companies are mostly of external environmental factors including historic high yen, flood in Thailand and EU financial crisis. For electronics companies that heavily rely on flat TV business, their strategy is also a possible factor.
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