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Japanese Gadget Makers Need To Pull Off A Miracle

Source: http://www.businessinsider.com/japanese-gadget-makers-need-a-miracle-2012-11

Ailing gadget-makers may find it hard to copy Toyota’s turnaround.

JUST over three years ago, Akio Toyoda, then the new boss of Toyota, said that the carmaker founded by his grandfather was on the verge of “irrelevance or death”. Buffeted by bad news ranging from the global economic crisis to product recalls and huge losses, he responded not with a massive shake-up but a simple strategy: to make cars that were fun to drive. From that, he argued, would follow sales and profits.

It has not been an easy road since, but the turnaround seems to be gaining traction. On November 5th Toyota raised its net profit forecast for the current fiscal year to a five-year high of {Yen}780 billion ($9.8 billion). That is well short of record profits, but it contrasted with Honda and Nissan, which slashed their profit forecasts by a fifth. All three have been hurt by slumping sales in China, which is in a territorial row with Japan. But Toyota’s new hybrids as well as its Corolla and Camry models have been flying out of the showrooms.

New bosses at Sharp, Panasonic and Sony must be looking at Toyota enviously, wondering how they too can rebuild Japan’s image as a producer of snazzy high-tech goods. Jointly, their companies are expected to have lost more in the past five years than they have made profits in the past two decades.

Sharp is in the ugliest mess. The maker of TVs and solar panels is so sensitive about its balance-sheet that on November 5th i! t revise d a four-day-old announcement that had said there was “material doubt” about its future. The new version, with no apologies for murdering the English language, said: “There exist conditions which might raise uncertainties about Sharp being an assumed going concern. However, we judge that no uncertainties about Sharp’s ability to continue as a going concern will exist.”

The same day, Standard & Poor’s, a ratings agency, cut Sharp’s creditworthiness further into junk territory. It said two years of huge losses were straining its finances, added to which Sharp was highly dependent on short-term debt. Two banks, Mizuho Corporate and Bank of Tokyo-Mitsubishi UFJ, recently provided it with a {Yen}360 billion syndicated loan, but this expires next June, just before a big convertible-bond issue comes due. S&P said it might downgrade Sharp again in 90 days, if the company’s finances or its relationship with its banks worsens.

S&P believes Panasonic and Sony have stronger balance-sheets. But they are also suffering from chronic overinvestment in loss-making TV and other screen-related businesses that make them look too much like Sharp for comfort. Panasonic shocked its bondholders recently when it said it faced losses of over {Yen}700 billion for the second year in a row. It also skipped its annual dividend for the first time since 1950. Sony, meanwhile, predicted a full-year profit but said that much of its core electronics business remained in decline.

Is there anything they can learn from Toyota? Analysts say their industry is much more commoditised than carmaking. Their empires are so thinly spread across an array of businesses that it is harder to cut costs through economies of scale. They are also too wedded to Japan to move to cheaper manufacturing locations.

Yet Mr Toyoda has one lesson to teach: they could put more energy into making products that consumers enjoy. That’s what their competitors in South Korea and at Apple do. Sadly, they are too busy stanching the wounds of the past to give it much thought.

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