Death by consumption

Japan risks consumer electronics death spiral

“We are among the losers in consumer electronics.” That frank assessment by Panasonic president Kazuhiro Tsuga sums up the state of Japan’s once world-beating electronics industry. The economy is partly to blame for slumping demand for Japanese gadgets, but so are rivals like Apple and Samsung. The worry is that the financial squeeze undermines product development, leaving Japan ever further behind.

Quarterly earnings, released this week, revealed big losses and low expectations. Panasonic - Japan’s largest corporate employer – delivered the biggest shock, knocking seven per cent off its full-year revenue forecast and predicting a net loss of  ¥765 billion ($9.5 billion). Much of that is due to writing off intangible assets, like goodwill, that do not affect the company’s cash position. But the prospect of a fourth loss in five years also forced it to take a less optimistic view of the value of accumulated tax losses. Cancelling its dividend for the first time in sixty years is another signal of Panasonic’s predicament.

It is not alone. Although Sony stuck to its full-year forecast, the electronics group is heading for a second year of losses. And while revenue was up slightly in the six months to the end of September, it expects to sell fewer flat-screen televisions, digital cameras and hand-held PSP consoles this year that previously estimated.

Both Sony and Panasonic are still in better shape than Sharp, which openly admits it may not be able to survive as a going concern. Nevertheless, it’s hard to see these companies coming up with the next generation of world-beating gadgets. In the rush to preserve cash, the temptation is to skimp on investment: Panasonic spent seven per cent less on research and development in the six months to September than in the same period of 2011. And though Sony expects R&D to rise by eight per cent this year to ¥470 billion, its budget is dwarfed by that of South Korea’s Samsung.

There’s more to innovation than just spraying cash around: Apple spends a smaller proportion of its revenue on R&D than Sony. Still, the prospect of more losses and further restructuring don’t leave much hope for a successful turnaround.