Sony, Panasonic Withstand Strong Yen With Forecasts
July 30, 2010, 4:22 AM EDTBy Mariko Yasu and Maki Shiraki
(Updates with closing share prices in fifth paragraph.)
July 30 (Bloomberg) -- Sony Corp. and Panasonic Corp., the world’s largest consumer-electronics makers, signaled Japanese technology companies are withstanding slowing European demand and the stronger yen after raising their earnings forecasts.
Hitachi Ltd., Mitsubishi Electric Corp. and Tokyo Electron Ltd. also lifted their profit projections today, citing higher earnings from components and machinery. Earlier this week, Fujitsu Corp. and Sanyo Electric Co. increased their forecasts, while Canon Inc. and Toshiba Corp. delivered profits that exceeded analysts’ estimates.
The improving profits, driven by demand for televisions and chips used in products such as Apple Inc.’s iPhone, may ease concern that the yen, trading at an eight-month high against the dollar, will prevent Japanese electronics makers from competing against South Korean rivals. Panasonic and Toshiba said sales in North America and Japan expanded, helping the manufacturers withstand the European sovereign debt crisis.
“The results were better than I thought they would be,” said Hideo Arimura, who helps oversee $2.2 billion at Mizuho Asset Management Co. in Tokyo. “The strong yen in the previous quarter really threw things into disarray, but I really feel they did well considering the gain in the currency.”
Sony, which announced its forecast yesterday, rose 3.6 percent to close at 2,705 yen on the Tokyo Stock Exchange, the highest since June 4. Panasonic gained 6 percent and Fujitsu advanced 4.4 percent. Japan’s benchmark Nikkei 225 Stock Average dropped 1.6 percent.
Flat-Panel TV Sales
Sony, the Tokyo-based maker of Bravia TVs, raised its full- year profit forecast 20 percent to 60 billion yen ($695 million) and Panasonic revised its projection by 70 percent to 85 billion yen after they both posted first-quarter earnings that exceeded analysts’ estimates. Both cited better-than expected sales of flat-panel TVs for their improved outlook.
While corporate earnings may signal consumers are unleashing demand pent up during the world’s deepest postwar recession, U.S. indicators suggest consumption in the world’s largest economy will be hurt by joblessness. A survey this week showed consumer confidence at a five-month low.
There are signs demand may weaken in Japan too. The jobless rate unexpectedly climbed to a seven-month high of 5.3 percent in June, according to a statistics bureau report today. Consumer prices excluding fresh food declined 1 percent from a year earlier.
Recovery or Depression?
Economists are debating the recovery’s strength, with the International Monetary Fund seeing a sustained rebound and Nobel laureate Paul Krugman predicting a depression.
Threatening Japanese exporters’ ability to ride on the back of a recovery is the yen, which has gained 18 percent against the euro and 7.7 percent versus the dollar, making it the best- performing major currency this year. A stronger domestic currency erodes the value of overseas earnings when repatriated.
“We still cannot wipe out uncertainties for the future, including the currency,” Sony Chief Financial Officer Masaru Kato said in Tokyo yesterday. “Still, the first-quarter results were much stronger than we had expected and we aim to maintain the momentum through the rest of the fiscal year.”
Stronger Yen
Sony and Canon this week said they expect the yen will be 14 percent stronger against the euro than they estimated three months ago, projecting the Japanese currency will average 110 yen against the 16-nation currency during the rest of the fiscal year. Panasonic revised its projection for the Japanese currency against the euro to 112 yen from 120 yen.
Sony, which generates more than 70 percent of revenue outside Japan, loses about 7 billion yen of annual operating profit for each yen decline in the value of the euro and 2 billion yen for every 1 yen weakening in the dollar, according to the company.
Higher earnings are also the product of cost reductions. Sony has closed down 11 factories and eliminated about 20,000 jobs in the past two years, while cutting 20 percent of procurement costs and 330 billion yen of expenses last fiscal year. Panasonic slashed almost 30,000 jobs in the 12 months ended Sept 30, trimmed 371.5 billion yen off fixed costs and saved 453 billion yen of other expenses last fiscal year.
Beyond Japan
The recovery at technology companies stretches beyond Japan. Taiwan Semiconductor Manufacturing Co., the largest contract manufacturer of chips, yesterday reported record profit and boosted its spending budget by 20 percent. Intel Corp., the largest chipmaker, earlier this month forecast record profit.
“All our business segments are showing robust growth despite the difficult situation where we still see possibilities of weakening economy in the U.S. and Europe,” Makoto Uenoyama, director of finance at Osaka-based Panasonic, said yesterday.
Fujitsu, Japan’s biggest computer-services provider, yesterday said net income in the six months to Sept. 30 will probably total 15 billion yen, triple its earlier projection.
Sanyo, the world’s biggest maker of rechargeable batteries, this week more than doubled its estimate for first-half operating income, or sales minus the cost of goods sold and administrative expenses, citing stronger sales of solar panels and electronic components.
Hitachi, Japan’s No.3 company by revenue, raised its first- half profit forecast 82 percent to 100 billion yen, while Mitsubishi Electric raised its earnings projection by 29 percent. Tokyo Electron, the world’s second-largest maker of semiconductor equipment, raised its annual profit outlook 15 percent, citing better-than-expected chip demand.
Nintendo, NEC
Not all Japanese companies are posting higher earnings. Nintendo Co., the world’s largest maker of video-game consoles, yesterday reported its first quarterly loss in more than two years, hurt by the stronger yen and declining sales of DS handheld players.
A day earlier, NEC Corp., Japan’s largest maker of personal computers, reported its first-quarter loss unexpectedly widened and said the costs of reorganizing the company may increase.
Competition may be intensifying. South Korea’s Samsung Electronics Co., the world’s largest TV maker, said on July 7 it posted record operating income last quarter.
The company’s operating profit totaled about 5 trillion won ($4.2 billion) in the three months ended June, more than five times the amount earned by Sony and more than quadruple the earnings at Panasonic. Net income jumped 83 percent to a record 4.28 trillion won as sales rose 17 percent, Samsung said today.
“Good results this year won’t be good enough,” said Yuuki Sakurai, chief executive officer of Fukoku Capital Management in Tokyo. “They have to pursue that and show to the market that their business model is capable of coping with Korean manufacturers.”
--With assistance from Adam Le in Tokyo. Editors: Young-Sam Cho, Jonathan Annells.
To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Maki Shiraki in Tokyo at mshiraki1@bloomberg.net.
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net.
