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Tuesday, April 29, 2014

Company Revamp Shows Profit For Panasonic

Japan's Panasonic Corp. says it will have a third-straight year of operating profit growth thanks to its restructuring plan that caused it to move away from the tricky consumer markets to what it perceives as the safer industrial product—specifically those in the auto industry, such as automobile batteries.

Panasonic booked operating profit of ¥305.1-billion (~US/Cdn$2.978-billion) for the year ended on March 31, 2014, its best result in three years.

In February, Panasonic rival Sony Corporation slashed its profit forecasts, proving itself correct as its TV unit division spent its 10th year in the red (losing money).

But, thanks to getting rid of several of its money-losing businesses, Panasonic avoided that embarrassing problem.

"We have made a big shift away from focusing on the top line," said Panasonic chief executive officer Tsuga Kazuhiro (surname first).

In 2013, Panasonic closed down a plasma television factory and sold off several Japan-located  chip plants.

For this upcoming fiscal year, Panasonic says it is going to spend ¥90 billion (US/Cdn $882-million) to get rid of businesses still losing money… which means a revamp, more than likely.

The biggest money-loser for Panasonic is its division that manufactures LCD panels for its televisions, losing ¥45.6-billion (~US/Cdn $445.2 million) in 2013/14. 

It was during this past year that Panasonic spent some ¥207.4-billion (~US/Cdn $2.02 billion) just to restructure itself. Yikes.

Apparently one has to spend money to drop out of such businesses as smartphones.

The money from last year and this upcoming year will be spent on figuring out how to double its sales to the automobile industry, increasing by 50 per cent its market in the housing sector, and how to gain a one-third increase in its business-to-business arm that includes aviation, energy and logistics.

Hmm… it seems as though Panasonic is looking to focus less on the consumer retail market and more about the commercial and industrial market.

It's probably true that there are too many companies competing for the same low-priced retail products, so why not go more high-end?

For example:
  • Panasonic is the only battery supplier for Tesla Motors (electric automobile);
  • Panasonic owns 2% of Tesla, which it bought for $30-million;
  • Toyota (automobile) owns $50-million in Tesla;
  • Tesla and Toyota are partners in the RAV4 EV (electric cross-over SUV vehicle);
  • Panasonic is THE supplier of batteries for Toyota's hybrids;
  • Panasonic supplies batteries for the RAV4 EV.
Basically, for a cool $30-million investment in Tesla, Panasonic got its foot in the door to door work with Toyota, starting with one vehicle, and hopefully, if they have their way, with more as Toyota and Panasonic are involved in a joint battery-development partnership.  

According to Warwick Business School associate professor of strategic management Dr. Sotirios Paroutis: "Panasonic has been implementing its turnaround strategy at an impressive pace, but this is not an easy ride.

"Pulling out of non-profitable consumer electronics businesses—some of them synonymous with the Panasonic brand name like the plasma display panels—has helped the firm readjust its portfolio towards automotive and housing products with stronger demand.

"Also it has been launching a series of new cameras and camcorders that have proven popular with consumers.

“A weak yen and an increased domestic demand for housing products has boosted revenues and helped the firm achieve a 16 per cent net profit rise. Both effects from the exchange rate and domestic demand are likely to ease in the next few months, so the question is whether Panasonic has done enough to keep performing well.

“Keeping up with the pace of innovation investments plus acquisitions and partnerships in the automotive and housing areas is the next challenge for Panasonic.

“The early signs are positive, as the company has extended its contract for supply of lithium-ion batteries to Tesla and there are discussions for a major factory jointly with Tesla."

Well, it appears as though no less than the Warrick Business School's associate professor agrees with my take on things. It's probably the first time I have ever said anything a professor would deem correct, judging by my old university marks. Usually, universities don't like it when you have an opinion that differs from their own.

At least this time, they are agreeing with me. LOL.

Anyhow, I should point out that despite Panasonic showing profit over the last three quarters, it has and still is investing huge amounts of money into its infrastructure to change its business. It's putting billions of dollars into this investment, which Panasonic realizes is not short-term solution, but rather is part of the long-tern, on-going answer that will set Panasonic in good stead moving forward over the next 20 years.

It might actually begin to show a real profit sooner—after all of its costs are calculated within these numbers—but it's not something that is a 2014 scenario, despite me and Panasonic claiming they are showing a profit. They aren't really... but by taking the chance now, they have set themselves up to succeed in the near future.

Cheers,
Andrew Joseph

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