Bold moves paying off for Japan’s 3 top electronics companies

The Yomiuri Shimbun

16:07 JST, February 24, 2022

Japan’s leading electronics manufacturers are once again increasing their earning power.

On Feb. 2, Sony Group Corp., Panasonic Corp. and Hitachi, Ltd. announced strong earnings forecasts for the fiscal year ending March 31, 2022. Each has been successful in boldly changing their respective business structures, shifting from the manufacturing of conventional home electronics to businesses that can generate sustainable profits,

Record profits from movies

Sony Executive Deputy President and Chief Financial Officer Hiroki Totoki said the company’s movie business is expected to record its highest-ever profits.

“We’ll accelerate the growth of the game business, too, with the acquisition [of a U.S. company] as a catalyst,” Totoki said at an online press conference on Feb. 2.

Sony is expected to revise upward its forecast for its operating profit for the fiscal year ending in March 2022. The full-year forecast for the figure showing profits from their core businesses is expected to reach a record high of ¥1.2 trillion, up 25.6% from the previous fiscal year.

The entertainment business is leading the way in Sony’s strong performance, partly due to the great success of the latest “Spider-Man” movie released in the United States at the end of last year.

On Jan. 31, the company announced it will buy U.S. video game company Bungie Inc. for about ¥410 billion. The game market is expanding amid the COVID-19 pandemic, and Sony aims to accelerate its growth by acquiring popular video game titles and producers.

The entertainment division accounts for 51% of the group’s nearly ¥10 trillion in sales, and 63% of its operating profit. Sony’s main profit earners were traditionally TV, audio-visual and other home electronics equipment, but this has now completely shifted to its entertainment businesses.

Discarding past ways

All three companies are moving away from old business models.

After posting a huge loss of ¥780 billion in the fiscal year ended in March 2009, after the Lehman shock,

Hitachi withdrew from its unprofitable domestic TV production and hard disk businesses. The company moved forward with structural reforms to shift its focus to business-use IT services, which are expected to generate sustainable profits.

In July last year, Hitachi invested more than ¥1 trillion to acquire GlobalLogic Inc., an emerging IT company in the United States, to accelerate the overseas expansion of profitable IT services. The company plans to double its operating profit from ¥495.1 billion in the fiscal year ended in March 2021 to more than ¥1 trillion in five years.

Panasonic, which has the highest percentage of sales in home electronics among the three companies, is pursuing a similar course. Panasonic will make the switchover to a holding company in April, and establish eight subsidiaries, such as for home electronics, on-board batteries and business-use systems, to increase management independence and accelerate the pace of reform.

U.S. software firm Blue Yonder, Inc., which Panasonic acquired for about ¥860 billion, is expected to become the key to its growth. Panasonic aims to improve the productivity of its client companies and secure stable profits by combining its image recognition and sensor technologies with Blue Yonder’s strengths in demand forecasting and logistics efficiency.

Yasuyuki Higuchi, a senior managing executive officer of Panasonic, emphasized, “We’ll change our business model to one based on recurring revenue, similar to that of electricity and gas.”

Some concerns

The three companies have vastly different growth strategies, with Hitachi President Keiji Kojima saying, “We never consider things from the perspective of the [electronics] industry as a whole.”

The firms’ business performance over the past 10 years or so clearly shows they are on a recovery track. Their combined net profit was a loss of more than ¥1.2 trillion in the fiscal year ended March 2009, after the Lehman shock, but is expected to remain at a high level of ¥1.65 trillion for the fiscal year ending March 2022.

However, the ongoing shortage of semiconductors and other products, as well as global logistics disruptions, may be a source of anxiety. They also appear to be at a crucial point as to whether their large-scale acquisitions of overseas companies will produce results commensurate with their investment.

Waseda University Prof. Atsushi Osanai, who is familiar with the electronics industry, said: “It’s still too early to evaluate whether the companies’ business transformations have been successful. They need to create a virtuous cycle of earning solid profits from existing businesses and achieving growth through new businesses.”

Kojima to concurrently serve as Hitachi CEO

On Feb. 2, Hitachi announced that President Keiji Kojima, 65, will concurrently serve as chief executive officer from April 1. Chairman and CEO Toshiaki Higashihara, 66, will focus on his job as chairman.

Kojima was in charge of Hitachi’s IT services for businesses, which Hitachi positions as its core operation for growth. By having him serve as president and CEO, Hitachi hopes to concentrate authority and accelerate its business expansion.

Kojima was promoted to president and chief operating officer in June last year after the late Hiroaki Nakanishi stepped down as chairman due to health reasons. Kojima is also taking the lead in formulating a new medium-term management plan, which be announced this spring.