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.