Bad news is commonplace for Japan’s beleaguered electronics sector. But even by Japanese standards, Tuesday was a lousy day.
Sharp (6753:JP), the world’s fifth-largest TV maker, announced it was widening its loss forecast to 380 billion yen ($4.7 billion). That’s 31 percent worse than what the Osaka-based company reported just a month ago and will be the biggest loss in Sharp’s 100-year history. Meanwhile, Sony (SNE) announced a loss of 520 billion yen for the fiscal year that ended March 31, more than twice what it had predicted in February. “The situation,” Sony Chief Financial Officer Masuru Kato told reporters today, “is critical.”
We all know the problem: The strong yen, the March 2011 earthquake and tsunami, and the Thai floods have made it impossible for the Japanese to compete against their more nimble rivals from South Korea. Sony and Sharp—not to mention Panasonic (6752:JP) and other Japanese electronics companies—can’t seem to find a way to take down Samsung Electronics (005930:KS) or LG Electronics (066570:KS). The Japanese are fighting and losing a two-front battle against not just the Koreans but also the Chinese. And as newer, lesser-known competitors from China become stronger, the Japanese are going to feel the squeeze.
For now, the big problem is Samsung. At the high end of the market, Japan’s largest consumer electronics companies are increasingly unable to compete against their world-beating rival from South Korea. Samsung was the world’s top TV maker in the fourth quarter of 2011, with 26.3 percent of the market. That was three percentage points higher than the previous quarter and was “a record level for any brand,” according to a report from market research firm NPD DisplaySearch.
The Japanese companies’ Korean problems aren’t limited to Samsung. LG, the other big Korean player, is giving them fits, too. LG was No. 2 worldwide in the final quarter of last year, with 13.4 percent of the market. After Samsung, LG was the only other top five TV brand to grow, according to NPD DisplaySearch. And what of the Japanese? Sony was in third place, with 9.8 percent of the market—a 34 percent plunge from the previous year. No. 4 Panasonic was down 19 percent and No. 5 Sharp was down 30 percent.
The Japanese share is likely to keep falling as Chinese competitors keep narrowing the gap with their neighbors. A decade ago, companies from China could make giant old cathode-ray-tube TVs but they weren’t a threat in LCD, plasma, or any other technology that anybody cared about as the future of television. One Chinese company that tried to break out of the CRT trap and become a global player was TCL Multimedia (1070:HK), based in southern China’s Guangdong province. To speed its ambitions to become a force outside of China, TCL made a deal with France’s Thomson to gain control of its RCA brand and then quickly sank into oblivion as the Chinese company struggled to make the deal work. TCL provided a case-study of what could go wrong when China tried to jump-start global sales by acquiring a tired Western brand.
TCL has turned its business around, thanks largely to the growth of its home market. Sales of TCL televisions jumped 50 percent in March, the company reported on April 9, to 1.35 million shipments. For the first quarter of the year, TCL sold 4 million TVs—just 765,000 of them were CRTs. The rest were flat screens. Investors have taken notice: TCL’s Hong Kong-listed stock price has increased 65 percent in the past 12 months, compared to a 39 percent drop for Sony and 32 percent fall for Sharp.
Companies such as TCL and its local rival Skyworth (751:HK)—China’s market leader, with 16.6 percent of the market—are best-positioned to profit from the rise of the Chinese consumer. On Tuesday, TCL announced the launch of several new TVs, including two 3D smart TVs that will connect to the Internet via cloud computing technology. Even more ominous for the likes of Sony and Sharp, TCL said it intends to aim high in China, while forcing down prices. “TCL Multimedia will adjust the price of 3D smart cloud TV to the level of ordinary 3D TV by technological innovation, cost optimization, and price adjustment strategies, which will enable consumers to enjoy the leading 3D smart cloud products at the price of an ordinary 3D TV,” TCL said in a statement.
Even with the Chinese economy showing signs of a slowdown, China is the world’s most-important TV market. It accounted for 21 percent of television shipments, according to DisplaySearch, and was the only major market with strong growth: Shipments grew 19 percent in the fourth quarter, compared to the same period in 2010.
The Chinese aren’t just buying old technology: According to DisplaySearch, more than 90 percent of TV sets sold in China last year were LCDs. As the Chinese market grows in importance, companies like TCL and Skyworth will become even greater threats to the Japanese.