TOKYO – The TV set – once regarded by Japan Inc. as the focal point of every living room, essential to fuel growing demand for a host of other consumer devices – has turned on its parents, draining their resources and threatening their future.
Japan’s Big Three consumer electronics companies -- Sony, Panasonic and Sharp -- are suffering from TV fatigue. While no company seems to have a silver bullet to fix this gloomy situation, the strategy most touted by the media and among analysts here is both blunt and startling:
Get the hell out of the TV business — and fast.
Nikkei Business, the Japanese business publication, put a daring headline on the cover of its latest issue on Monday (May 21): "Sayonara, TV."
“Wake up, Japan, Inc," the story warns. "By clinging to the TV business, while accumulating losses, you’re treading water on the way to drowning. It’s time to abandon TV.”
That assessment is based on a pessimistic assumption shared by an apparent plurality of industry experts: flat TV manufacturers may never again be able to squeeze out profits. The hard reality is that Japan’s flat TV suppliers have little choice but to sell their panels at a loss, or forsake selling them at all.
The Nikkei Business story, however, overlooks a possibly significant historical lesson: Ending TV manufacturing in the 1980’s marked the beginning of the end of production, development and engineering activities for U.S.-branded CE companies in the United States. Zenith became LG of Korea, RCA became TCL in China, and the rest fits into the bleak pre-millenial history of American industrial decline.
But all that might not matter so much. Clearly, it’s upsetting to many in Japan that Panasonic, Sony and Sharp – the three biggest flat TV manufacturers here – are no longer making money on TV manufacture.
But also upsetting is the fact that the TV business isn’t just a drag. It’s sucking the life out of the big three.
Ailing Japanese CE manufacturers (fiscal year ending March, 2012)
In the fiscal year ending in March this year, Panasonic recorded a whopping net loss of 772 billion yen (about $9.26 billion). Sony also reported to stockholders a net loss of 457 billion yen ($5.55 billion). Sharp lost 376 billion yen ($4.57 billion) during the same period. Heads rolled at all three companies, while each of the big three announced major restructuring plans.
Of course, the stronger yen, the impact of the Great East Japan Earthquake, floods in Thailand and the deterioration of European market conditions also hammered the big three’s bottom line. But tabbed as the main culprit is the flat TV business – wherein all three, almost blindly, pursued bold expansion plans that ended up shrinking profits.
As NPD DisplaySearch pointed out earlier this year, worldwide TV shipments in 2011 fell for the first time since the market research firm began tracking global TV shipments in 2004. They slipped 0.3% to 247.7 million units.
Although LCD TV shipments increased by 7% to over 205 million units in 2011, this marked “a substantial slowdown from the double-digit growth in previous years,” according to the company. “With plasma TV shipments declining almost 7% in 2011 to 17.2 million units, the largest decline yet, and CRT shipments falling 34%, LCD growth was not enough to offset these declines,” NPD DisplaySearch concluded.
Excessive inventory caused the reduced shipments -- particularly in early 2011 for the U.S. and European markets. Further, the Japanese market saw a sharp drop in demand following the end of the government-sponsored ‘Eco-Points’ program that previously caused a surge in replacement activities during 2009 -2010, explained Paul Gagnon, NPD DisplaySearch Director of North America TV Research.
One could surmise that slipping demand for flat TVs in 2011 virtually pushed the Japanese TV giants off the cliff.
But questions remain as to how seriously each of the big three is committed to folding its legacy TV business. Do they really believe that getting out of the TV business is a surefire answer to restoring profitability?
Maybe business isn’t that simple.
However, clearly the big three are edging a post-TV era, although their strategies and their depth of commitment vary distinctly.
For Panasonic, “post-TV” equals to “non-TV,” meaning using its plasma technology for digital signage, digital blackboards and outdoor displays. Panasonic is reportedly cutting plasma TV shipments by half to 2.5 million units in 2012, while 60 percent of plasma screens – bigger than 50-inch – will be shifted to the non-TV market. Panasonic will reduce its overall flat TV shipments (including LCDs) from 17.52 million to 15.5 million units in the current fiscal year ending March, 2013. The bigger question for Panasonic now is with what other products can possibly make up the reduced revenue expected from the TV reduction.
New Sony CEO Kazuo Hirai would not say that Sony is fleeing the TV business. But Hirai deliberately left TV out of the three “core businesses” -- digital imaging, games, and mobile -- he touted as the new focus for “One Sony.”
Hirai has already taken key steps to restructure Sony’s TV operations, pulling out, for example, of an LCD manufacturing joint venture with Samsung. This move was essential. Sony was paying Samsung hundreds of millions of dollars in fees and penalties because poor TV sales meant it was buying too few panels from the shared business.
Nonetheless, Sony’s losing streak in the TV business will continue as the company expects to lose another 80 billion yen by next March.(However, this is a big improvement, according to Sony, over this year’s 148 billion-yen deficit in the TV business.)
Of the big three, Sharp perhaps took the most drastic steps, by allowing Hon Hai Precision Industry Co., Ltd. (trading as Foxconn) to take a 9.9 percent stake in Sharp, with the Taiwanese firm's billionaire founder Terry Gou putting his own money into Sharp’s Sakai fab – gaining a 46.5 percent share of it. While speculation abounds that the deal is the first step for the Taiwan EMS giant to take over the 100-year old Japanese company, Sharp sees Gou’s investment in the Sakai fab as critical. The Sakai fab – opened in 2009, capable of handling super large glass substrates – is considered an important milestone in LCD panel production. However, the problem is that its run-rate has consistently remained at a disappointing 50 percent.
Financial analysts see the Taiwan firm in a strong position to push for a deal to manufacture the Apple TV, potentially taking the business from Korean rivals. Gou’s ambition is clear but the outcome remains uncertain.
The final factor setting Sharp apart from the other two Japanese giants, though, is that Sharp is now more committed to becoming a key device supplier, rather than a full-fledged TV supplier.
If the abandonment of TV manufacture is the future in Japan, a few intriguing questions come to mind: Is Sony the next RCA? Is Panasonic the next Philco, and Sharp the Zenith of the 21st century?