Why Korean Tech Firms Make Money But Japanese Tech Firms Don't

Posted by: Kenji Hall on July 31, 2009

Take a look at first-quarter earnings released yesterday for Sony and Sharp. They can be summed up in a word: dismal. Though Sony and Sharp announced results that weren’t as bad as analysts had expected, both companies had racked up sizable net and operating losses. (Sony’s operating loss topped $271 million while Sharp’s was $274 million.)

Now dial back a week to Samsung Electronics’ earnings. Samsung said quarterly operating revenues rose 5% to more than $2 billion, compared to the same quarter a year ago. Its revenues gained nearly 12% to $26 billion. Meanwhile, LG said operating profit surged 32% to $912 million.

Samsung and LG boasted operating margins of 8% compared to around minus 4% for Sharp and minus 6% for Sony.

The simple explanation is that a strong yen wrecked Japanese tech exporters while a weak won buoyed Korean tech firms. To be sure, the yen’s 30% gain against the won since the April-June quarter of last year is part of the reason for the stark difference in performance. Currency rates can significantly inflate or shrink exporters’ revenues earned overseas when those revenues are repatriated. (Even Nintendo, which has been on a roll despite the recession, got hammered by unfavorable currrency rates. It was safely in the black but its earnings fell sharply—sales were off 40%, operating profits dropped 66% and net profits sank 60%—from the April-June period last year.)

But currencies hardly explain everything. Nomura Securities’ Eiichi Katayama points out that Korean manufacturers buy equipment and materials from Japanese companies and then sell their products to the same countries where Japanese tech firms do business.

So how to account for the diverging results? “We think that Korean companies’ strategic moves and speedy management decisions are a key reason,” Katayama wrote in a report to investors yesterday. “For example, all the consumer electronics majors are pouring resources into the flat-panel TV business. However, Samsung Electronics is already generating an operating margin of more than 10% from this business, while Panasonic and Sony, the two Japanese majors, are both struggling with double-digit operating loss margins.” (Panasonic reports first-quarter results next Tuesday.)

Samsung and LG recognized that low-cost TVs were doing a lot better than high-end sets with the latest features, and were quicker to adjust their product mix. That's the reason those two have been gaining TV market share globally while Sony and Sharp face the prospect of losing more ground. (Of all the major markets, only Japan and China had higher TV sales in the April-June quarter compared to a year ago; China was alone in growing on a quarterly basis.)

Unlike Sony, Sharp has laid out a clear strategy. It is scheduled to open a state-of-the-art flat-panel-making plant in Sakai, near Osaka, this fall. The plant will make the world's largest sheets of glass that can be cut to make liquid-crystal-display TVs, allowing Sharp to make big-screen sets more efficiently than practically any other LCD TV manufacturer. It's also looking to sell its older factories and equipment to Chinese or Taiwanese companies, and establish a new supply source for low-cost panels.

So far, Sony has only said that it wants to outsource more TVs. The strength of that idea is that it could give Sony more supply of low-end TVs; the risk is that it could dilute Sony's brand.

Reader Comments

Tom

July 31, 2009 10:48 AM

Sony TV is on death-bed. Seriously doubt the slow marketing responding company can stay alive for five more years. Put your money on Samsung. Samsung is hungry for world market, like Sony used to be 25 years ago.

doubleplusgood

July 31, 2009 11:21 AM

The reason that Samsung has been more profitable than Sony in the LCD arena is that Samsung relies heavily on cheap 3rd party manufacturers to produce its panels whereby Sony makes nearly all its panels in-house.

Samsung does make some of its own panels, but with the lower end models, most are 3rd party and perform poorly. However the sets that stores put on display will always be the Samsung made ones since they have a much better picture. These sets are also the ones which are sent to journalists for reviews. The consumer has no way of knowing what set he got until he opens the box at home and checks the sticker. The models numbers are same but some are made by Samsung, and some by 3rd parties.

Sony so far has not played this game, unfortunately it looks like they're thinking about starting since uneducated consumers have fallen for Samsung's bait and switch tactics and have bought the poorer quality sets.

Sona

July 31, 2009 11:57 AM

Quite interesting observation.

“We think that Korean companies’ strategic moves and speedy management decisions are a key reason,”

Speedy management decision is quite characteristic of Korean culture..

Sony - Self-made trouble

July 31, 2009 7:04 PM

Sony's trouble is self-made by selling shoddy products that fall apart immediately after warranty expire using deceptive marketing methods. People bought one such product never buy any Sony products again. That's how Sony's trouble started. Sony TVs and Laptops are highest in return to repair centers!

jo

August 1, 2009 12:38 AM

It's true Japanese consumer products are not that good. They have been banking on their famous names for sometime but the quality has not lived up to the reputation. My Panasonic washing machine, air-conditioner and shower heater failed after not very long in use. Even 20 years ago, my Sony stereo became faulty after use for a year or more. In contrast, some less famous brands seems to be more robust!

SOANNOYING

August 1, 2009 10:43 AM

@Doubleminusbrain

Sony produces zero LCD-sheets inhouse, in Japan or anywhere else in the world. SONY panels are from their joint-venture with SAMSUNG called "S-LCD" aka manufactured solely by SAMSUNG in Korean fabs. In most SONY TV-set ticks an SAMSUNG panel. Get your facts right before babbling bullshit.

Phineas j Whoopie

August 2, 2009 12:57 AM

I agree with self-made-trouble: Warrantee service on Sony products is limited and really hard-edged.. Most techie people today are computer savvy and used to computer mfg support and warrantees: like easily sending back a dead hard drive and getting a fresh one with no hassle during the warrantee period, w/o receipt or "bring to service center for evaluation" crap. Mfg date less than 1 year or 3 = easy exchange. Support? drivers and tools all on site, upgrades available, etc. Look at the mini-disc fiasco: crap software, proprietory format, bad hardware, lousy warrantee, no support.. And yet I love my sony MP3 walkman, but they took soooooo long to get it right.. Only Apple can behave this bad and get away with it..

TokyoJo

August 2, 2009 8:32 AM

Japanese companies generally move too slow. It was okay in the past, but in this high-paced, quickly changing world, it is a huge disadvantage. Also, I agree that Sony's products are not so good. After so many problems with a VAIO I bought many years ago, I promised myself that I would never buy a Sony computer again.

dcp

August 2, 2009 8:32 AM

I have bought my last Sony product. Everything I have purchased over the last three years has failed after the warrenty period. Previous purchases did not have the problem.

I have been doing business in Asia for more than 20 years and the difference in the Koreans approach to business is they are top down organizations led by strong family organizations. Japanese corporations are not family based. They are socialistic support organizations that manufacture products.

The test will come when the second generation of Korean business leaders have to turn over their businesses to the 3rd generation. Their fathers and grandfathers were tough economic warriors. The third generation will have to deal with the rise of China and they are not up to the challenge.

dave

August 2, 2009 3:02 PM

Yes, Sony has been making low-quality products for many years now. Not only that, but their prices are usually marked up significantly above other brands, even though those brands have HIGHER quality than Sony.

It's about time to dig this companies grave and put it 6 feet under, where it belongs.

Remember the ROOT-KIT?

August 2, 2009 3:05 PM

Do you remember the root-kit fiasco? They installed a special driver without your permission which in many cases caused significant damage to your computer.

They didn't even ask to install it, it would just install itself if you tried to play a song on your computer. The company is just SHADY.

June

August 3, 2009 7:41 PM

doubleplusgood doesn't know the industry story well. Samsung makes the LCD panel in their own factories. On the contrary, w/o Samsung, Sony cannot build LCD TV for consumer as they buy panel from Samsung.
Thesedays, the most important biz trend for consumer TV is the one which use LED for BLU. Samsung's aggressive strategy for this high-end TV makes more profitable now.

April

August 4, 2009 9:42 PM

There is no dount that Japanese product quality has deteriorated while Korean product quality has caught up. Japanese reputation is over-rated. I'll pick Korean brands such as Samsung and LG for its price and quality.

Margaret

August 7, 2009 3:42 AM

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Margaret

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Newbie

August 8, 2009 1:08 AM

The downfall of Sony and Sharp is a preview to what would eventually happen to Japan. The fact that Japan is an affluent and developed country (on the periphery of Asia) is just an anomaly. What we are seeing is a correction. Japanese are not hungry enough.

Arthus

October 11, 2009 6:33 AM

I want to call for the affirmation of the nullity of that article.

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Bloomberg Businessweek’s team of Asia reporters brings you the latest insights on business, politics, technology and culture from some of the world’s biggest and fastest-growing economies.

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