TOKYO -- Clarion's recent struggles raise the prospect that parent company Hitachi may need to decide between deepening its relationship with Japan's first developer of car stereo systems or severing ties altogether.
Clarion surprised investors in January by slashing net profit guidance for the year ending March 31 to just 1 billion yen ($9.46 million), down from a previous forecast for 7 billion yen. One-time restructuring costs for measures such as job cuts were partly to blame for what would be a plunge from the 7.72 billion yen net profit in the prior year.
The Saitama-based manufacturer had been considered a stronger performer than the rest of Japan's "big four" in automotive electronics -- Pioneer, Alpine Electronics and JVC Kenwood -- because it made comparatively fewer retail products, which generally offer thinner margins. But Clarion was not immune to the toll imposed by smartphones, as devices such as navigation systems increasingly are being replaced.
Looking to reduce its dependence on the conventional in-car infotainment systems, Clarion has been collaborating with Hitachi to develop autonomous-parking technology that uses a smartphone. The subsidiary started supplying electronic control units for autonomous parking this fiscal year for Nissan Motor's new Leaf electric vehicle. And it seeks to reach 10 billion yen soon in revenue related to autonomous driving. Reorganization of its personnel and production sites globally is aimed at reinforcing this business amid the strong growth potential.
Investors are watching for moves by Hitachi, which holds a stake of over 60% in Clarion. The unit has called its alliance with the conglomerate indispensable in developing autonomous-driving technology. The parent apparently wants to put its automotive business on track for further growth, hiring a former executive of Swiss technology company ABB to lead automotive equipment subsidiary Hitachi Automotive Systems.
Hitachi turned Clarion into a subsidiary in 2006 by raising its stake from slightly more than 10% to upward of 60% through a tender offer, valuing the stock at 230 yen per share. After reaching a high of 475 yen last March, Clarion's stock has lost one-third of its value over the past year. It slipped below 300 yen per share briefly Monday before ending the day at 306 yen. If Hitachi is considering raising its stake further or making it a wholly owned unit, now appears to be an opportune time to do so.
The automotive electronics industry faces growing momentum for realignment, with Alpine absorbed by parent Alps Electric and Denso acquiring a car navigation company from Fujitsu. Yet it is uncertain what Hitachi might do with Clarion when automotive electronics -- previously a key asset -- seems to offer no substantial growth potential.
But Hitachi likely will act decisively once the company makes up its mind. The parent displayed no hesitation in unloading a cash cow such as Hitachi Kokusai Electric once it determined that no synergy could be expected from the group member.