Switching Business Models
Nov. 20, 2015
Japanese electronics-makers like Sony, Sharp and Panasonic once reigned supreme in global markets. But today, they’re facing stiff competition from Korean and Chinese rivals in a wide range of sectors, from TV sets to mobile phones.
There has been drastic restructuring in the industry in recent years. Japanese firms have sold off loss-making units to focus on high-end products.
The results have been mixed. But one strategy is looking promising -- shifting to B-to-B. That means supplying parts and devices to business customers instead of general consumers. And it seems to be paying off.
Japanese electronics firms are making a comeback, but some big names are missing out. Sharp and Toshiba reported losses for the first half of the business year, while Panasonic and Sony both turned in strong earnings.
Panasonic's operating profit for the first half of the fiscal year increased 13% to $1.6 billion. And Sony says it has returned to the black for the first time in two years.
"We are expecting an increase in earnings for all five electronics divisions for the full year," Sony’s Chief Financial Officer Kenichiro Yoshida said at a news conference.
One thing that’s boosting Sony's bottom line is the success of its camera image sensor, which converts light entering the lens into an electric signal. A high quality sensor basically means high quality photos.
And Sony's CMOS sensor isn’t just top quality, it's small. The company’s engineers achieved that by stacking two wafers together. Right now, it's the only company capable of mass producing this technology. That gives Sony a lock on the market. Most high-end mobile phones and many digital cameras come fitted with its CMOS chip. As a result, image sensors now account for 10% of Sony's profit.
Observers say switching from consumer products to components is key to the industry's future.
"Relatively, B-to-B business has a higher margin than the consumer electronics set business,” said Masahiro Ono, an analyst with Morgan Stanley MUFG Securities. “Focusing on devices and keeping technology difference -- that's more critical."
Sony executives obviously agree. They’re ramping up investment in image-sensor production, spending millions to buy production lines from other companies. Sony also sees a bright future ahead in the auto industry since image sensors will be essential for self-driving cars.
"The market for image sensors will continue to expand for the next 30 years,” said Shigeo Ohba, who is with Sony’s Device Solutions Business Group. “We will try to keep our top position."
Panasonic is another company moving up the supply chain, as any regular visitors to the annual electronics show in Las Vegas would know. The company’s booth for business customers at The International Consumer Electronics Show was double the size it was last year.
Panasonic exhibited new LED lights and displays, which companies can use to market their products. The electronics-maker is also charging up its battery business, supplying lithium batteries to electric-carmakers.
"Looking at the customer reactions, we feel confident that our shift to strengthening B-to-B business is the right strategy," said Panasonic President Kazuhiro Tsuga.
The company spun off its television and other money-losing operations two years ago. B-to B now contributes the largest share of its revenue. The strategy is proving profitable, and analysts say other companies will soon follow their lead.
Kinu Miyano reports from Osaka on Sharp’s business woes.
While Panasonic and Sony are back in the black, Sharp is a different story. The company continues to post huge losses.
Ten years ago, Sharp was a world leader in liquid crystal televisions. It spent millions on state-of-the art factories only to watch as South Korean makers overtook them with cheaper models. Lately, it's been negotiating a financial rescue with a Taiwanese manufacturer and other potential investors.
Despite the hardships, Sharp isn’t giving up on its LCD business. Some of their research labs are busier than ever. Much of the innovation is taking place in Kameyama, central Japan, which is the home base for Sharp's LCD production. The company is working on new ways to use LCDs that has nothing to do with television.
For example, a US satellite communications company is teaming up with Sharp to develop a satellite antenna. The core technology is a transistor used to control colors in liquid crystal panels. Sharp engineers have adapted the chip so it can receive radio waves from satellites. Using LCDs, they can make much smaller antennas.
The developers forecast strong demand for compact satellite receivers, starting with automakers and shipbuilders.
While B-to-B looks promising, Sharp believes it can also use advanced technology to win back consumers. Executives are betting big on home appliances linked to the Internet.
"We are aiming to create new value by preparing for the full internet connection of home appliances," said Sharp Consumer Electronics Company President Yoshisuke Hasegawa.
Sharp is working on a complete web system, starting with smart appliances. These devices feed information over the Internet to a central database. Artificial intelligence will use that data to offer services on everything from menus and health advice to online shopping. Sharp's first door to cyberspace is a refrigerator you can talk to. The company showcased it at a recent home-appliance trade fair. It's aiming to sell 1,200 units in the first year.
Sharp is now working on other smart appliances. Some of these products will look familiar, while others will be a big step into the future.
"There's a lot of work to do. We are just at the starting point," Hasegawa said.
Coming up with innovative products is important. At the same time, you need to respond quickly to changing consumer needs.
Japanese electronics-makers are still on the cutting edge in many fields. But some observers say these companies have been too slow to get rid of their money-losing units.
Sony and Panasonic seem to have learned that lesson and are streamlining their operations. For Sharp, we will have to wait to see.