Japanese electronics firms struggle to survive

Some of the biggest names in Japanese electronics manufacturing are struggling to survive competition from low-cost consumer electronics manufacturers, according to media and analyst reports.

Pioneer Corporation and Sanyo Electric Company are facing sharply declining profits from former cash cows, and are looking to cutbacks and management changes for a solution.  

The president and the chairman of Pioneer resigned their posts yesterday evening to take responsibility for "the steep decline in Pioneer's financial performance due to the smaller than planned number of units sold of plasma displays and DVD recorders", a company statement said. 

A similar management reshuffle at Sanyo five months ago does not yet appear to have reversed its fortunes, however.

Credit rating agency Standard and Poor's today downgraded Sanyo's long-term corporate credit rating from BB+ to BBB-. Ratings below BBB are typically described as 'junk status' or 'below investment grade'. 

"We foresee a decrease of sales of our home electronics products such as plasma displays and DVD recorders in comparison to our previous projections in the second half of fiscal 2006," Pioneer warned in a statement last month, prior to the resignation of its senior executives. 

Facing low-cost competitors elsewhere in Asia, Japanese electronics giants are no longer able to profit from some of the innovative technology that they developed in the past, according to analysts.

"Pioneer released the world's first DVD recorder in 2000 and has been at the forefront of the market with its subsequent product launches," said Nomura Securities analyst Eiichi Katayama. 

"Ultimately, however, the company has also been afflicted by severe price competition in the DVD recorder market."

While these former cash cows fade, Pioneer's heavy investment in new display technology, particularly plasma TV screens, in which Pioneer holds a six per cent global share, is failing to produce profits.

Analysts have suggested that Pioneer must outsource more of its older technology to low-cost manufacturers in Taiwan, Korea and China.

Sanyo, meanwhile, has been troubled by big losses in its home appliance division and has seen a slump in once healthy sales of digital cameras and mobile phones.

Japanese-style management reshuffles, in which company leaders typically exchange places with directors rather than leaving the company, are sometimes criticised for having only a cosmetic effect.

Standard and Poor's said that Sanyo's latest recovery plans, announced last week, have not yet been finalised.

"Even assuming some increase in capital, we are concerned that Sanyo Electric will not be able to restore and stabilise its financial profile, considering the possibility of prolonged stagnant earnings and further restructuring costs," said Standard and Poor's credit analyst Katsuyuki Nakai.

"Any further delay in restructuring could put downward pressure on the ratings of Sanyo Electric."

Nomura's Katayama applauded the change in management at Pioneer as a "clear acceptance of responsibility", and noted that the incoming president had been running Pioneer's profitable car electronics division, which accounts for 42 per cent of Pioneer's sales.

Katayama called for radical restructuring to raise operating rates in Pioneer's plasma and OLED screen businesses, and more outsourcing of DVD recorder manufacture.

"The company now faces serious earnings erosion at the plasma display panel and organic EL businesses, and we think that the new president is likely to be given only two years in which to turn things around," he predicted.