Losses of Japanese Electronic Firms Worsen

By Mariko Yasu and Naoko Fujimura - Feb 6, 2012 4:48 PM GMT+0700

Japan’s biggest makers of phones, televisions and chips say they’ll lose about $17 billion this year, about three-quarters of what Samsung Electronics Co. (005930) will spend on research to lengthen the lead over its competitors.

Sony Corp. (6758) more than doubled its annual loss forecast for the year ending March 31 as it announced a new chief executive officer, while Panasonic Corp. and Sharp Corp. predicted the worst losses in their histories. Their combined losses compare with the $22 billion that Samsung, Asia’s largest consumer- electronics company, said it will invest in capital expenditures.

Japanese companies hurt by a stronger yen, flooding that swamped Thailand factories and weaker demand for their TVs may not be able to regain ground lost to Samsung and Apple Inc. (AAPL) That’s prompting Sony and Panasonic to focus on sectors including medical devices, solar panels and rechargeable batteries in an effort to revive earnings.

“Japan’s consumer-electronics makers are in a total breakdown,” said Masamitsu Ohki, a fund manager at Stats Investment Management Co., a Tokyo-based hedge fund. “They need to compete with ideas, not technology.”

Samsung is the world’s biggest maker of TVs, memory chips and flat-screen panels, and the second-biggest manufacturer of mobile phones. The Suwon, South Korea-based company and its affiliates plan to spend 47.8 trillion won ($43 billion) this year on new product research and upgrading plants.

Harsh Competition

Samsung, which doesn’t forecast annual results, reported a 17 percent increase in fourth-quarter net income.

“The Japanese consumer electronics makers shouldn’t compete with the Koreans in the same market,” said Koji Toda, chief fund manager at Resona Bank Ltd. in Tokyo. “The environment surrounding Japanese manufacturers is very harsh.”

Panasonic (6752), Sony and Nikon Corp. gained in Tokyo trading today as Asia-Pacific markets rose after U.S. jobs data beat estimates, raising expectations that exports will increase.

Panasonic gained 6.3 percent to 637 yen on the Tokyo Stock Exchange, and Sony advanced 4 percent to 1,492 yen. Nikon surged 11 percent after raising its full-year operating profit forecast 7.5 percent on higher-than-expected demand for digital cameras.

The MSCI Asia Pacific Index (MXAP) added 0.4 percent.

Panasonic’s reform of TV and chip operations, cost cuts, buying more parts from Asian producers and a recovery from flood damages may boost profit by about 250 billion yen ($3.3 billion) in the year starting April 1, the company said Feb. 3.

Recovery Measures

President Fumio Ohtsubo “highlighted bold recovery measures,” Shiro Mikoshiba, an analyst at Nomura Holdings Inc. in Tokyo with a “buy” rating on Panasonic shares, said in a report today. “Panasonic continues to be among electronics makers with prospects of large profit increases next fiscal year.”

Sony, Japan’s largest electronics exporter, predicted its loss in the year ending in March will widen to 220 billion yen, the first time since the Tokyo-based company began trading in 1958 that it will have four consecutive annual losses.

Kazuo Hirai, named last week to take over as CEO starting April 1, said he will close less-competitive businesses. Sony, worth more than $100 billion in 2000, is now valued at about $19 billion.

Moody’s Investors Service said today it remained “concerned that Sony’s earnings may remain weak and volatile without effective strategies to deal with the company’s structural challenges.” The company’s credit profiles remain under “strong pressure,” the ratings company said.

Strong Yen, Weak Won

Panasonic, Japan’s biggest appliance maker, forecast a 780 billion-yen loss, the worst since the Osaka-based company was founded in 1918.

Fitch Ratings today downgraded Panasonic’s long-term rating to “BBB-,” the last of its 10 investment grades, from BBB, citing “material deterioration” in the company’s financial results. Fitch also had a “negative” outlook on the company.

Sharp, the maker of Aquos TVs, predicted a loss of 290 billion yen, its worst in a century. Moody’s today changed its outlook for Sharp’s “A3” rating to negative.

“The rating action reflects Moody’s increasing concern that Sharp may not be able to improve its financial profile in a timely manner,” Moody’s said in the statement.

Thailand’s worst floods in 70 years shut factories making cameras and hard-disk drives, disrupting production and causing shortages during the holiday shopping season.

Apple’s Record Profit

Samsung also benefits from the strengthening Japanese currency against the dollar, compared with the weakening won against the greenback.

The yen’s 7.3 percent surge against the dollar and 11 percent gain against the euro in 2011 damped the repatriated value of Japanese companies’ overseas sales. Sony earned 70 percent of its revenue outside Japan and Panasonic 48 percent.

Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts.

By comparison, the won depreciated 1.3 percent against the dollar in the past year, helping Samsung, which earned 85 percent of its revenue in 2010 outside South Korea.

Samsung’s profit in the quarter ended December advanced 17 percent to 4 trillion won, helped by smartphone sales that kept pace with Cupertino, California-based Apple. Sales rose 13 percent to 47.3 trillion won.

‘Marvelous Manufacturer’

“Samsung is a marvelous manufacturer,” said Edwin Merner, president of Atlantis Investment Research in Tokyo, who manages $300 million. “They can make good things at a very low price. Sony can’t do that.”

Apple had a net income of $13.1 billion in the quarter ended Dec. 31, ranking it among the highest quarterly profits on record and putting the company in the same league as Exxon Mobil Corp. and Russia’s Gazprom OAO.

“Apple changed the paradigm of thinking,” Stats Investment’s Ohki said. “It would be very hard for the Japanese companies to recover unless they can get back the de facto standard for products like mobile phones from Apple.”

That’s what Sony wants to do. The company will strengthen mobile devices and expand in new areas such as medical, Hirai said Feb. 2.

In the television business, Sony hasn’t had a profit in the past seven years selling Bravia models, while bigger rivals Samsung and LG Electronics Inc. are profitable in the sector. Last year, Sony exited a joint venture with Samsung that makes panels as part of revamping the business, that’s set for an eighth year of losses in the year to March 31.

Sony’s financial services, music and movies businesses were all profitable in the year to March 2011, according to data compiled by Bloomberg.

“We weren’t able to select areas where we want to concentrate, so we ended up keeping products that became commoditized,” Hirai said. “We want to make our focus clear soon.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net