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Sanyo's Surprise CEO


In October an earthquake measuring 6.8 on the Richter scale struck Japan's Niigata prefecture. The temblor damaged machinery at Sanyo Electric Co.'s semiconductor plant there and forced the facility to close for months -- costing the company, which wasn't insured against quakes, $690 million in repairs and lost income. That contributed to a second jolt the company announced in March: a projected $1.1 billion loss for the year ended Mar. 31, the biggest shortfall in Sanyo's 58-year history.

The loss, in turn, has spurred a seismic shift in Sanyo's executive ranks -- and the appointment of one of the few female bosses of a major company in Japan. On Apr. 8 the Osaka-based maker of consumer electronics, batteries, and home appliances said it was hiring Tomoyo Nonaka, a 50-year-old former TV journalist with little knowledge of electronics and no senior management experience, as its new chairman and CEO. She is scheduled to take over on June 29. "I wasn't surprised at this appointment -- I was amazed," says John Yang, a Standard & Poor's (MHP) equity analyst in Tokyo. "Given the lack of a track record, I'm not sure how Nonaka's going to turn Sanyo around."

There's no time to lose. Sanyo's profits have failed to top 2% of sales for the past five years, and its problems go far deeper than the earthquake damage. Sales at Sanyo's digital camera division fell 3% in the nine months to Dec. 31. Then, in January, Sanyo cut its estimates of the number of cameras it will ship during the year ended in March, from 14 million to 11 million. Customers such as Olympus and Nikon -- which buy Sanyo's cameras and put their own brands on them -- had scaled back orders in the face of a glut in the market. Sanyo's home appliance division, meanwhile, remains in the red, and its mobile-handset business has suffered as phone prices have fallen. Overall, net income from Sanyo's consumer unit, which makes everything from DVD players to washing machines, dropped 20% through Dec. 31.

While the company will likely post a small profit in the year ending next March, few see a rosy future. Deutsche Bank (DB) forecasts earnings of $94 million on sales of $22.5 billion -- down from an expected $24 billion for the fiscal year just closed. On Mar. 26 the bank downgraded Sanyo's shares to "sell." The share price has already fallen 37% over the past 12 months. The company's travails have gotten so bad that it even launched a campaign encouraging employees to buy Sanyo goods to boost sales.

Sanyo says Nonaka is the right person to shake things up. She attended Sophia University in Japan and the University of Missouri at Columbia in the U.S., then became one of Japan's most recognizable broadcasters, covering everything from royal weddings to the Seoul Olympics and hosting a nightly business show on TV Tokyo for four years. After quitting television in 1996, she began serving on government advisory committees and corporate boards, including those of Sanyo and Asahi Breweries. As a relative outsider at Sanyo, she may be able to make tough decisions -- such as trimming its workforce of 82,000 -- that a Sanyo lifer might not be willing to do.

Nonaka will have strong backing from Sanyo's new president, Toshimasa Iue. A grandson of Sanyo's founder and son of the current chairman, Iue was appointed the same day as Nonaka. The 42-year-old Iue has an MBA from Boston University and made his name at Sanyo after being appointed head of its batteries division in 1999. He helped turn the division into the industry leader by focusing on rechargeables and new lithium ion technologies, striking lucrative deals to provide batteries for Nokia Corp. (NOK) phones and Ford Motor Co. (F) hybrid cars. Today the unit is Sanyo's most profitable business, with margins of 6%. "He proved that he could operate a difficult division," says Yuki Sugi, an analyst at Lehman Brothers Inc. (LEH) in Tokyo. "The question is, can they transfer that success to the rest of Sanyo?"

Convincing doubters will not be easy. Some critics view Nonaka's selection as a way for Sanyo's septuagenarian chairman, Satoshi Iue, to deflect attention from the appointment of his son. There are also questions about the extent to which the new chief executive will be able to manage, given that the elder Iue will stay on as chairman of the board -- in what he says will be a largely advisory role -- with Nonaka serving as executive chairman and CEO. The company says that it has yet to decide how Nonaka and the Iues will divide their day-to-day duties.

One of the most urgent tasks that the new team will face is buffing up the tarnished image of Sanyo. Panasonic, Samsung, and Sony (SNE) are much better known and are perceived as far cooler than Sanyo. The company "has not been good at attracting customers in an era of so much choice," Nonaka told reporters after her appointment was announced. "We have to rebuild the Sanyo brand." Sanyo is betting that this former broadcaster can get the message across.

By Ian Rowley, with Hiroko Tashiro, in Tokyo


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