Illustration by Phil Couzens
Japan’s technology sector is currently in the process of transforming itself once again. But this time, there is no bubble economy to burst, no Y2K overhang presenting innovative perspective, and no dot-com bust to offer context and guidance. It’s the global recession that has many of the country’s tech companies at their postwar nadir.
And the iconic electronics brands, the epitome of corporate Japan, are ailing in particular.
In early 2009, industry experts watched in awe as Sony announced a radical restructuring program after the company projected its first annual operating loss since the mid-nineties.
It took months for Pioneer, a company that posted $9 billion in revenue just three years ago, to raise a relatively modest $360 million through an overseas stock offering. In fiscal 2008, one of Pioneers’ top shareholders, Sharp, had to report its first net loss since it went public. Fujitsu even felt the need to call upon all of its employees to buy as many goods of their company as possible.
And these are by no means the only proud firms that have been hurting lately. Panasonic, Hitachi, NEC, and Toshiba have felt the economic shift as well. The recession, exacerbated by the strong yen that crippled exports, dealt a massive blow to all of Japan’s technology powerhouses.
But there is a curveball. The companies seem to be eager to defy the ‘doom-and-gloom’ of the world economy. In fact, the downturn might turn out to be the best thing to happen to the industry in decades, accelerating structural renovation some players had been putting off for years. The new focus is on producing higher-margin goods, reducing new investments and tapping less cyclical businesses. And to accomplish this, the once too-big-to-move-too-fast high tech giants have resorted to measures almost unthinkable just a few years ago.
Many have begun to divest themselves of business units that were once part of their corporate DNA, with Pioneer standing out as one of the most prominent examples in recent months. Once renowned for making some of the best televisions in the industry, Pioneer reacted to weakened demand for its high-priced TV sets by shutting down its entire money-losing display segment last year. The company is now trying to carve out a new future as a manufacturer of car-related equipment.
Cross-shareholdings aren’t unusual in Japan’s technology sector, but today’s harsh market environment forces even former opponents to overcome decade-long rivalries. The several new alliances, mergers and acquisitions that have emerged in the past few months are poised to change the electronics landscape forever.
Key industry areas that are currently being turned upside down include mobile devices, clean technologies and displays. Three of Japan’s eight top cell phone makers, namely NEC, Casio and Hitachi, merged their cell phone businesses this year. The new company, dubbed NEC Casio Mobile, is now the country’s second biggest manufacturer of cell phones.
In late 2009, Panasonic acquired a majority stake in Sanyo because of its leading position in rechargeable batteries and solar cells. The move put Panasonic on par with Hitachi as Japan’s biggest electronics firm. In the TV business, Sony and Sharp have been battling each other for decades, only to watch Samsung and LG take over the number 1 and 2 positions in the global LCD market in the mid-2000s. The former arch rivals reacted by forging a spectacular alliance, which includes the joint production of LCDs and consolidation of R&D for next-generation TV technologies. And the list goes on and on, as virtually every major Japanese electronics company has suddenly opted to team up with domestic competitors in one way or the other.
These efforts are beginning to slowly bear fruit, especially for the bigger players. Sony, for example, lost money five quarters in a row before reporting a handsome $1.6 billion operating profit for the last quarter of 2009. Panasonic’s profit nearly quadrupled to $1.1 billion year-on-year in the same time frame, while Hitachi managed to swing back into positive territory with $245 million in profit (after a year-earlier net loss of $4.2 billion).
It seems the first steps for a structural makeover have been taken, but there’s still a rocky road ahead. The long-term prospects ride not only on how Japan’s electronics firms will weather the after-effects of the recession, but also on how well they will stack up against their powerful Asian competitors. A case in point is Samsung, whose operating profit in the third quarter of 2009 was more than twice the size of the quarterly profits of nine major Japanese rivals (including Sony, Hitachi and Panasonic) combined. Against this backdrop, all eyes are on whether Japan’s electronics can regain their “mojo” in the future.
Dr. Serkan Toto is a Tokyo-based web industry consultant and writer for American online media network TechCrunch.
