To say that Japan’s leading consumer electronics manufacturer Panasonic Corporation (ADR) (NYSE:PC) has been struggling in the past couple of years would be an understatement. Having completely misread the market on consumer electronics trends it now finds itself in very dangerous territory. The rise of Apple Inc. (NASDAQ:AAPL) and the South Korean duo Samsung and LG Electronics has brought with it the fall of several Japanese electronics giants such as Sharp, Canon Inc. (ADR) (NYSE:CAJ) and, in this case, Panasonic, which has already slashed its workforce by more than one fifth. At the recent Consumer Electronics Show 2013 held in Las Vegas, the company’s president Kazuhiro Tsuga hinted at a possible closure of business units in the future, without giving any specifications. In its last fiscal year for the 12 months ending March 2012, the company swung to an operating loss of $5.808 billion from an operating profit of $3.025 billion in the year before. Nothing at this point will alter another year of these kinds of losses.
For the current fiscal year 2013, Panasonic has downwardly revised its sales forecasts. Total annual revenues are now expected to drop from $87.219 billion to $81.1 billion while net losses will still be in the $8.50 billion range. Along with the job cuts, Tsuga is also aiming to close those business units that have an operating margin of less than 5% by the end of Q1 2016. So far, only the Appliances unit, out of the company’s seven divisions, has been able to consistently deliver more than a 5% margin. If that doesn’t wake up both the vertical VP’s and the shareholders I’m not sure what will.
According to a Goldman Sachs analyst, Panasonic might need to spend more than $4 billion on restructuring. It is expected to clamp down on manufacturing of plasma panels, semiconductors, smartphones and batteries. Its Shanghai plant that manufactures plasma display panels is going to be shut down by the end of this year. According to Pocket-Lint, a separate decision to close a LCD panel facility in favor of OLED TVs and 4K tablet panels has already been made. Moreover, Panasonic has also admitted that their investment in 3D television has not paid off, a severe tactical error.
I believe a number of companies are going to be in a similar position as they continue to try to move the television forward. The film industry is struggling with the same issues. Greater ‘wow’ factors (3-D, smell-o-vision, etc) have always been pushed when ticket sales begin to lag indicating, frankly, a dearth of good ideas and storytellers and a market unimpressed with both.
The company has smartly decided to jump into OLED as this is the future of television. Wow factors like 3-D are not what people really crave. Clarity and picture quality have always been the ultimate determiner of a good TV. Sony Corporation (ADR) (NYSE:SNE) made a lot of money selling Trinitron’s over the years, simply because the better picture was worth the premium price.