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Japan's electronics firms urged to mergePosted by Retirement on: 2005-09-16 11:59:45 in category:
401(k) [ Print | Permalink / 0 Comment(s) ] By Lucas van Grinsven TOKYO (Reuters) - Japan's fragmented electronics industry, under attack from low-cost Asian competitors and hamstrung by its own pride, must consolidate if it is to achieve respectable levels of profitability, analysts and industry executives said. The operating profit margin of Japan's top 10 electronics makers in 2004 was a mere 2.8 percent on hundreds of billions of dollars of sales, and has been stuck at low levels for years. Top executives acknowledge that investors and managers should no longer accept such meager results. "In Japan we've taken it for granted, but profitability is not at a good level," Yasuo Nishiguchi, chief executive of components-to-copiers manufacturer Kyocera Corp. (6971.T: Quote, Profile, Research), said at the Reuters Asia Technology and Telecoms Summit. His company has outperformed most of its domestic rivals, with an operating profit margin in the 8 to 10 percent range in the past several years. "Ten percent is what companies should try to achieve. If you aim for 3 percent, you end up with 3 percent," he said. Low profitability is due in large part to the move to digital products, which made it easier for new Chinese, Taiwanese and Korean rivals to compete, said Herman de Haan, the head of Japan operations at Netherlands-based Philips Electronics (PHG.AS: Quote, Profile, Research). DIGITAL DISADVANTAGE "If I look at our TV manufacturing in 1981, we had 1,000 or 1,500 ladies in a factory. They had to make eight or 10 adjustments to make the set perfect. It was all fingers work. Having control of research, development and manufacturing gave a company a head start of one or two years," he said at the summit, held at Reuters offices in Tokyo. "Today, everybody can do it. The system is on the chip," he added. Japan, however, has too many electronics makers to compete effectively, said Fumiaki Sato, an electronics industry analyst at Deutsche Bank in Tokyo. He noted that 10 Japanese mobile phone makers, including electronics giants NEC Corp. (6701.T: Quote, Profile, Research), Matsushita Electric Industrial Co. (6752.T: Quote, Profile, Research), Sharp Corp. (6753.T: Quote, Profile, Research), Toshiba Corp. (6502.T: Quote, Profile, Research) and Hitachi Ltd. (6501.T: Quote, Profile, Research), held a combined global market share of only 10 percent in the last business year, while none had more than 2 percent. "Ten players are sharing a pie with a low level of productivity," he said. Specialized chip and software engineers are divided among 10 companies, he added, rather than joining forces at one or two companies that could compete at a global level. "They are not viable for global competition," he said. A shake-out is needed and Japanese electronics companies must merge or work together, he said. TEXTBOOK PERSPECTIVE Bruce Berkoff, chief of marketing at LG.Philips LCD (034220.KS: Quote, Profile, Research), the world's biggest flat display maker, said consolidation was long overdue but other factors were also playing a role. "From a textbook perspective, the industry is overripe for consolidation. If you take the logical set of assumptions, it's time," he said. "But if you know Asia, you know there are a lot more factors. Different companies have intricate relationships, and there are 'face' issues. And partly, it is pride," he said. Competition will remain intense, Berkoff warned. "New entrants in China do things that do not make economic sense," he said. Compounding the problem is Japanese manufacturers' reluctance to outsource production, especially of cutting-edge products such as plasma TVs. Peter Tan, president for Asia and Japan of electronics contract manufacturer Flextronics International Ltd. (FLEX.O: Quote, Profile, Research), believes Japanese companies are making a big mistake in believing they can go it alone. "Japanese companies want to build products for the European, Asian and U.S. markets. But they cannot build a 62-inch flat TV set in Asia and ship it to the United States. Even the high-end panels cannot sustain the cost structure of Japan," he said. Homepage Please support are sponsors. To design you custom retirement plan. http://www.retirement-plan.us For planing a IRA rollovers. http://www.ira-rollover.us Professional asset allocation and the wonders it can do. http://www.asset-allocation.us Professional money management: National ranked performance. http://www.roth-ira.us Managers selected to fit your needs. http://www.money-managers.us |
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