Sony, Panasonic and Sharp Are in Deep Financial Trouble

A lack of innovation and entrepreneurial management have put in jeopardy the future viability of Japanese consumer electronics manufacturers. They've lost their competitive edge, and now their very survival is at stake.

This saga of the once mighty but now fallen Japanese consumer electronics makers is a clear example of what Joseph Schumpeter labeled as the "creative destruction" characteristic of free market competition.

In fact, Schumpeter described progress and the effects of capitalistic competition thusly, "Economic progress, in capitalist society, means turmoil."  And so it does.

For Japan's Electronics Behemoths, Dire Times Ahead tells this tale of woe:

"After years of bets gone wrong and lost opportunities, three of Japan’s consumer electronics giants are showing some signs of faltering, reports . . . Friday’s New York Times.

Sharp forecast on Thursday a 450 billion yen ($5.6 billion) full-year loss and warned that it had “material doubts” about its ability to survive. On the same day, Panasonic’s shares lost a fifth of their value in Tokyo after the company forecast a 765 billion yen ($9.6 billion) annual net loss from write-downs in its solar-power, battery and mobile handset businesses.

And Sony, perhaps the best positioned of the companies, posted a net loss of 15.5 billion yen ($194 million) for the quarter on Thursday and warned of falling sales in almost every product it sells.

The three companies face similar problems at the core. They all make good quality, even cutting-edge products — but so do their overseas competitors, usually at lower prices. None of the three have managed to generate the brand pizazz of Apple, or the marketing muscle of Samsung Electronics. . . .

The scale of the losses is the result of specific missteps. A manufacturing bubble in Japan in the mid-2000s masked continued weaknesses in their business models and spurred the companies to take big bets that backfired.

When the global financial crisis brought that boom to an end in 2008, the three were saddled with excess capacity, bloated work forces and investments that they could hardly hope to recoup. And their refusal to make a big enough departure from the ways of their glory years is now making a comeback difficult."

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And Panasonic Stock Tumbles cites a few reasons why the Japanesese electronics makers are in such dire straits:

"After four months on the job, the president of Panasonic delivered a sober assessment that the once-mighty Japanese electronics maker now is part of the industry's "loser group" and handed down a new round of restructuring measures aimed at solving the company's deep-rooted structural problems.

Kazuhiro Tsuga, who took over as Panasonic's president in June, said the company plans to scale back manufacturing in Japan, stop selling mobile phones overseas and curb investment in solar panels and rechargeable batteries. . . .

The situation at Panasonic mirrors the problems plaguing Japan's embattled consumer-electronics industry. The television sets and other living-room electronics that once supported a thriving industry are now viewed as interchangeable by consumers. Japanese companies can't match the manufacturing might or marketing dollars of South Korea's Samsung Electronics Co., nor can they replicate the brand cache of U.S.-based Apple Inc.  The strong yen and a footprint of aging Japanese factories combine to deal another blow to their competitiveness....

It will skip its annual dividend for the first time since 1950, a stunning reversal for a company once considered so financially stable that it earned the nickname "Panasonic Bank."

In a repudiation of the company's past management, Mr. Tsuga said the company's research and development failed to deliver hit products, prompting the company to make structural reforms that produced a temporary increase in profit—only to see earnings deteriorate again.

The company plowed money into producing new technologies, but he said those investments failed to pay off as prices of consumer electronics plunged. . . .

The bulk of the latest quarter's loss stemmed from restructuring-related costs as Panasonic wrote down the value of its solar-panel, rechargeable-battery and handset businesses. . . . (The) Panasonic . . . acquisition of  Sanyo Electric Co. didn't deliver on the deal's promise of helping Panasonic push into green-energy products. . . .

 Mizuho Investors Securities analyst Nobuo Kurahashi questioned whether the newest wave of restructuring truly would be the last. Mr. Kurahashi said the latest streamlining didn't eliminate the lingering concern that Panasonic's core electronics continue to struggle, without any obvious drivers for growth.

"It's still unclear whether the worst is really over after this loss," he said.


SUMMING UP

This is yet another sad story of an artificially stimulated demand bubble leading to excess installed capacity which then leads to financial disaster when the bubble finally bursts.

Thereafter demand crashes, prices implode and companies that are unprepared to react swiftly and effectively to the competitive situation find their very existence at stake.

The free market where consumer choice rules is an equal opportunity destroyer of companies and managements that aren't able to maintain their competitive edge. Consumers are both the adjudicators and beneficiaries of free market competition.

And the gee whiz "green investment" stuff doesn't help keep a company focused on its core business activities when both precious time and money are wasted at a time when neither can be spared.

That's why in a prosperous economy, private sector investment and risk taking must be favored over public sector "investments" like solar panels, Solyndra and monopolistic subsidized government entities such as the postal service and voucher-less public schools, as examples.

At least that's my take.

Thanks. Bob.