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|  | APRIL 5, 2005
S&P's Tech Company Report Card, Pt. 2 [Page 4 of 4] Electronic Equipment Manufacturers Canon (CAJ ) AA/Stable Canon posted record operating and financial performance in 2004. It continues to enjoy stable and strong profitability from printers and copiers. Stepper and aligner business recovered significantly and turned profitable compared to an operating loss in the year-earlier period. Despite severe price pressures on digital cameras, particularly low-end models, Canon maintains solid profits on its cameras, unlike many of its competitors. This is supported by strong market position, strength in high-end models, and the ability to introduce new products on a timely basis. Canon's net-cash position increased to 850 billion yen at Dec. 31, 2004, from 593 billion yen at Dec. 31, 2003. Matsushita Electric Industrial (MC ) A+/Stable Matsushita's profitability continued to improve in the third quarter ended December, 2004. Operating profit increased by 24% from the year-earlier period. The profit growth is backed by continuous cost reductions and sales growth in video/audio eqipment, including PDP TV and digital cameras, and home appliances. This offsets price pressures, while sales in components/devices and mobile-phone handsets weakened. Matsushita maintains a strong balance sheet, with 1.01 trillion yen of debt and more than 1.26 trillion yen of cash and cash equivalents as of December, 2004. Its ample liquidity -- relatively high compared with peers globally -- is expected to help the company meet its investment requirement. In February, Matsushita made an upward revision of its consolidated results forecast for the fiscal year ending Mar. 31 and now forecasts total sales of 8.80 trillion yen and operating profit of 300 billion yen. Omron (OMRNY ) A/Stable Omron's financial performance remained strong during the nine months ended December, 2004. The EBITDA margin was 15%, compared with 13.9% in the same period last year. This improvement was due largely to a growth in earnings from industrial automation systems, reflecting recovering capital expenditures by Japan's industrial sector. Omron is expected to post a record profit again in fiscal 2004, ending March, 2005. It also benefited from increased demand for renewal and modification of ATMs and automated moneychangers in preparation for new banknotes. Omron is expected to continue to generate free cash flow, and its net cash position of about 52 billion yen as of Dec. 31, 2004 is expected to increase. Pioneer (PIO ) BBB/Negative Although the car-electronics business should maintain solid profitability, it isn't sufficient to offset the poor performance of home electronics. The EBITDA margin is expected to decline to about 7% in fiscal 2004, ending Mar. 31, 2005, from 12% in the previous year. The funds from operations to total debt ratio likely will remain low, at around 20% to 30% over the next few years. Ricoh A+/Stable Ricoh's financial performance remains solid, on growing revenues from maintenance services and consumable supplies for color multifunction printers. Its profitability is expected to be weaker for fiscal 2005 (ending March, 2005) than fiscal 2004, on slipping performance of its optical disk business, costs associated with the sale of its optical-related analog business, additional sales-promotion costs for color multifunction printers, and increased R&D expenses. Nevertheless, we believe Ricoh's competitive position and ability to generate profits and cash flow from its core business remain strong. Funds from operation to total debt likely will remain well above 50%, and the net cash position should continue to increase. Sanyo Electric BBB/Negative Sanyo Electric faces severe price declines and increased inventories in some of its core products, including digital cameras, where OEM products account for a high proportion of Sanyo's digital-camera business. While Standard & Poor's expects the deterioration in its financial profile to be a temporary setback, the rating could be lowered, if a sufficient recovery in profitability and cash flow fails to materialize. Sharp A/Stable Sharp's financial preformance remained strong in the nine months ended December, 2004, on robust LCD sales. Sharp is expected to continue to maintain solid earnings backed by good operating performance in its high value-added LCDs and other devices, such as CCD and CMOS, where its technological strength lies. Strong earnings are also expected in various consumer-electronics products using its key devices. Although Sharp will be required to make ongoing investments in devices such as LCD displays to maintain its position amid rising competition and price pressures, its balance sheet should remain strong, supported by solid cash flow and a conservative financial policy. Sony (SNE ) A/Negative Sony's profitability has been strained by product and price competition, especially in its core electronics business. Sony's efforts to strengthen its product portfolio have lagged behind those of an increasingly competitive market. In the quarter ended in December, 2004, Sony's operating profit decreased by 13% from the year-earlier period. In January, Sony revised its consolidated results forecast for the fiscal year ending Mar. 31, 2005, to sales of 7.15 trillion yen and operating profit of 110 billion yen -- reductions of 200 billion yen and 50 billion yen, respectively -- from its previous forecast. The decrease mainly can be attributed to the weak performance of Sony's electronics business because of price declines in audiovisual products, a competitive market environment for portable audio equipment, and lower sales of semiconductors and electronics components. The domestic-sales decrease is expected to be as much as 7% to 9% compared to a year earlier. We believes it will take some time for Sony to recover its profitability in electronics. Victor Co. of Japan (JVC Corp.) BBB-/Stable JVC's financial performance in the nine months ended September, 2004, was weaker than the year-earlier period. Continuous cost reductions could not offset severe price pressures on its main products amid rising competition. JVC has not achieved a sufficient result yet in its attempt to shift its profit structure toward digital products from analog products. Plus, its electronic-devices business has not turned profitable yet. The rating continues to take into account the advantages JVC derives from its relationship with its parent and majority shareholder, Matsushita Electric Industrial.
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