Sony, Panasonic's TV businesses in crisis

With Sony and Panasonic reporting record losses it appears their hopes of remaining large players in the TV business are fast disappearing.

Sony posted an eye-watering $5.7billion loss up to the end of March yesterday, while Panasonic notched up a thirty year loss record with a $9.7 billion net loss.  Both have shown poor results in TV sales, helping to drive them further into the red.

For Panasonic, which announced its losses today, it is expecting flat screen sales to fall further this year, down to 15.5 million from 17.5 million over the last 12 months.

Both are looking at major staff restructuring and, in Panasonic’s case, of its supply chain as its sells off some of its plasma screen production capacity.

While financial troubles in the TV market are hardly new, Meko analyst Bob Raikes believes that the writing is on the wall for the Japanese firms – which are no longer looking like major players in the market.

“They really have to make decisions if they are going to stay in it at all frankly,” Raikes told TechEye. “They just cannot afford to chase market sure any more. The game’s up.”

The TV market has always been a tough one and extremely competitive to boot. That includes the all conquering Samsung, the most successful TV company ever in terms of market share, Raikes said.   

Despite its huge dominance in the market, even Samsung has struggled to make any real dough from it endeavours. 

“Presumably people go into the TV business for the prestige of being the big consumer item in the middle of the home, because it is very difficult to make a case for going into the market for profit,” Raikes said.  “It is a long term problem.”

The outlook for Samsung is not so bleak, steaming ahead with OLED production, and leading just about everywhere else.

But with both Sony and Panasonic reporting massive losses the days of them leading in the industry are fast disappearing, and alongside Sharp, they must re-prioritise in order to claw back into the black.

According to Raikes they have been hit by a “triple whammy” of problems which have hampered sales. First of all, Sony is not producing flat panel displays, and Panasonic is producing the right type. Nearly all of the cost comes from the flat panel, and if a firm is not producing their own then they are going to struggle to make money.

Sony “missed the boat” by exiting the flat panel production too early. While Sony was able to charge a premium for its Trinitrons in the past, Raikes points out it can longer differentiate with its screens, and is instead handing cash over to the likes of Samsung to build them.

Panasonic might produce its own panels, but it has bet on the wrong horse after banking on plasma screens.  Panasonic does have its own supply chain in plasma screens, but it is now producing much more than anyone wants to buy.   

“You have to make bets when you are picking technologies, and they picked the wrong one,” Raikes said.

The second major problem is the strong yen, which has wreaked havoc with Japanese business for some time now.  For Panasonic, basing its production in Japan means costs are very high.

Competitors have had more appealing balance sheets from buying in from Taiwan, for example, and leveraging cheap components and labour.  

“Too much of their costs are in yen,” Raikes said. “It is a problem for Japan inc, just look at the problems for most of the Japanese consumer electronics companies.  Companies like Hitachi  which is doing well on a profitable basis are almost out of consumer electronics because it is just too hard with the yen as it is.”

The domestic Japanese market has collapsed in recent years, thanks to a variety of factors.

“You had a real super-boom in the Japanese TV market in 2010, and into the first quarter of 2011,” Raikes said.

This was due to both the analogue switch off and government subsidies. An abrupt stop came with the end of the subsidies, while the need for replacements vanished when the analogue signal was turned off.   With the tsunami hitting Japan that year, the situation was made even worse.

“All of that combined just absolutely decimated the TV market in Japan,” Raikes said.