Posted by: Kenji Hall on November 9, 2007
Call it the Bernanke effect. Federal Reserve Chairman Ben Bernanke’s warning that U.S. growth could “slow noticeably” hit Japanese stocks like a ton of bricks, sending them to a three-month low on Nov. 9. Leading the pack of losers for the day: Matsushita Electric Industrial, better known as the company behind the Panasonic consumer-electronics brand. Its shares dropped more than 4%, easily outpacing the bellwether Nikkei 225 Stock Average’s 1.1% fall.
Why did the Fed chairman send Matsushita’s investors running for cover? The whiff of a U.S. slowdown spells trouble for giant flat-panel TV makers. Those companies have watched with trepidation as high oil prices, a weak dollar, a softening housing market, and financial sector woes have ganged up to threaten U.S. growth. If the economy turns south, you can kiss good-bye to Americans’ appetite for big-ticket electronics.
Matsushita is especially vulnerable. At a time when other manufacturers of plasma-display TVs have put plans for new plants on hold, Matsushita has been on a rapid production ramp-up. (I wrote about Matsushita’s dilemma a few months ago.) The company is the world’s biggest plasma TV maker, accounting for about a third of unit shipments. It’s betting that scale will help it make big-screen TVs at a lower cost, which would keep it one step ahead of the rival flat-panel technology, liquid-crystal displays.
That seemed wise back when plasma ruled the big-screen TV market. But lately LCD manufacturers have moved from medium-sized screens into the 40-inch and 50-inch range, which are fast becoming the most sought-after. And that’s got other plasma TV makers, Korea’s Samsung SDI and LG Electronics, playing defense: They’re either scaling back or taking a wait-and-see approach.
Less than two weeks ago, Japan’s Pioneer cut its annual production targets by 22%, announced that it would halt one of its assembly lines, and scrapped plans for a new plant. Earlier this year, market researcher iSuppli noted in report that if you excluded Matsushita, most plasma panel makers’ factories were running at just 70% of capacity.
Despite anecdotal evidence of gloomy times ahead, Matsushita executives haven’t been panicking. At its third-quarter earnings announcement on Oct. 30, the company kept unchanged its annual operating-profit forecast, at 477 billion yen ($4.26 billion). It also stood by a prediction that it would ship 5 million plasma TVs (and 4 million smaller LCD TVs) in the year through next March. “I haven’t seen subprime loan problems impacting year-end demand for our products in the U.S. and other markets,” Matsushita President Fumio Ohtsubo told reporters. “But we’ll monitor the situation closely.”
Judging from how investors are reacting, you could see Matsushita rethinking its strategy soon.