Japan's tech giants scramble to refocus, reorganise
Other alliances or joint ventures are in the works with the results that Japan may eventually end up with fewer semiconductor players, helping to push the top tier of the industry into a much-expected consolidation in key market segments.
For instance, Panasonic Corp. has agreed to purchase Sanyo Electric Co. in a bid to reduce costs, improve the combined company's competitive position and strengthen its balance sheet.
The December announcement could "trigger a shakeout in the industry that could lead to a significant change in the competitive landscape of the domestic Japanese market," said Shibata.
In a statement announcing their agreement, Panasonic and Sanyo said they "recognise that existing strategies must not only be accelerated but also that drastic action is now required for further strengthening initiatives to achieve potential revenue and profit growth in the global economic recession stemming from the financial crisis as well as in the midst of intensified global competition."
Increasingly Japan's leading electronic companies are falling behind their international rivals, a development managements at the top five high-tech companies have been grappling with for years and which is now poised to trigger major changes at these enterprises.
While the market position and financial stability of the five biggest Japanese electronic companies differ in some respect, they are all trailing their foreign rivals in profitability with the situation worsening as the global economy weakened dangerously towards the end of 2008.
"The financial strength of Japan's top five electronics conglomerates is weaker than those of their overseas peers," S & P's said in a February report on the country.
"While the cash flow coverage ratios of Japan's five electronics conglomerates remain in the 30 to 40 per cent range, those of overseas peers exceed 100 per cent with the exceptions of Siemens (about 40 per cent.) In a difficult business environment, high financial flexibility is a more important factor to maintain and improve competitiveness," the ratings agency said.
It could be worse. Japan's leading IT companies are blessed with strong heavy electric machinery, industrial machinery and computer software businesses, which provide positive cash flow and require limited capital investments.
Conversely, Fujitsu, Hitachi, Mitsubishi, NEC and Toshiba have been cursed with profit-challenged, high capital expenditure and low profitability semiconductor, telecommunications and associated electronic businesses.
To remain viable businesses, these companies have to either jettison their semiconductor and electronics division or sharply reduce costs in these product areas and seek alliances with local or international rivals, Shibata at S & P said.
"The electronic companies bear a heavy R&D burden as they are required by telecommunication companies to continuously develop new technology," Shibata said. "Conversely, it takes longer for electronic companies to recover their R & D costs. Based on this, believes that Japanese electronic companies, with the exception of those with high market shares, will have even more difficulties in ensuring profits."
- Bolaji Ojo
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