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Panasonic and Sony: A tale of two companies in transition

Tesla battery tie-up struggles to turn profit for shrinking Matsushita empire

Panasonic's auto battery business, which has seen it hitch its fortunes to Tesla, remains mired in losses.   © Reuters

OSAKA -- Panasonic is nearing its goal of halting the bleeding from a trio of chronic money-losers, but unlike another once-sprawling Japanese electronics group -- rival Sony -- it has yet to find a path back to growth.

CEO Kazuhiro Tsuga led Panasonic into painful restructuring soon after taking charge in 2012.

Seven years later, he is still wielding the ax: Panasonic said Thursday that it would sell its semiconductor business to Taiwan's Nuvoton Technology, as first reported by Nikkei.

This followed last week's announcement that the company would withdraw from making liquid crystal display panels.

The back-to-back restructuring moves come as Panasonic's automotive battery business -- which has seen it partner with U.S. electric-car maker Tesla -- struggles to achieve profitability.

Investors appear to have welcomed the news of the exit from semiconductors, an industry in which Panasonic has had a presence since 1952, when it was still led by founder Konosuke Matsushita.

Panasonic shares were up 4% at one point Thursday before ending the day with a gain of nearly 3%. But from a longer perspective, a very different view emerges.

Panasonic and Sony both suffered losses in fiscal 2011 and fiscal 2012 due to factors including declines in their television businesses. Now-former Sony chief Kazuo Hirai took his post in April 2012, followed by Tsuga at Panasonic that June. But Sony's stock price has quadrupled since that time, while Panasonic's has only doubled.

Shedding unprofitable operations was their first order of business. Panasonic withdrew from plasma panels, and in February 2014 Sony announced the sale of its Vaio personal computer business. Until around mid-2015, the market was encouraged by these moves, with the duo's shares climbing. But their fortunes diverged in the steps following their restructuring moves.

Sony invested in image sensors for smartphone cameras, an area with little competition. This paid off handsomely: In fiscal 2017, Sony earned a record operating profit for the first time in 20 years. It is now on a solid growth track, making such expansionary moves as this October's decision to build a new factory in Nagasaki Prefecture.

Sony's consolidated operating profit margin came to 10% in fiscal 2018. Panasonic languished at 5%, below the 8% of Hitachi, another conglomerate working to shrink itself.

One analyst at a Japanese securities firm sees fiscal 2015 as an inflection point for Panasonic, as it was the year the company reached some of its restructuring goals and began searching for a growth path. It set up a strategic investment war chest of 1 trillion yen ($9.13 billion) and positioned automobiles and housing as key growth businesses. A high-profile tie-up was struck with Tesla to make batteries on a massive scale.

Panasonic expected to reap the rewards of its investment in auto batteries in just a few years, according to a senior executive, but the operations are projected to lose money this fiscal year on the rise of Chinese competition and delays in getting production facilities with Tesla up to speed. Panasonic announced deals this year to form joint ventures with Toyota Motor in non-Tesla battery operations and housing.

As its growth strategy bogged down, three restructuring issues remained: LCD panels, semiconductors and solar cells. November saw announcements of withdrawals from the first two. But Panasonic has indicated that there is still work to do. Tsuga said Nov. 22 that it would "eliminate money-losing businesses," aiming to reach 100 billion yen in savings through structural reforms and reductions in fixed costs.

The TV business, which had once turned profitable under Tsuga, is one candidate target now that it has slipped back to the red. It is an essential marquee product for a home appliance manufacturer, but even this does not appear safe.

Still, the market does not see a way forward. "The withdrawal from money-losing businesses is laudable, but with no future growth driver, and I can't see how profitability will be improved," said Makoto Kikuchi of Myojo Asset Management.

For now, Panasonic will focus on business-to-business operations, such as lighting and air conditioning, and automation for factories and distribution warehouses. It will also pursue a business model that combines software and home appliances, inviting Yoky Matsuoka, a former Google executive known for her expertise in the interaction of humans and technology.

In January 2018, when the company was celebrating its 100th anniversary, Tsuga said: "I ask myself, what kind of company are we?" After that, the buzzword "lifestyle updates" was launched as a management vision, to looks of incomprehension from both inside and outside the company. And with each cut comes the risk of losing talent and patents needed to flesh out this vision.

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