1, 31. 2006
Troubled electronics company Sanyo Electric Co. , Ltd. has not yet made clear how it is going to rebuild its operations. Its semiconductor business may be sold off, and an alliance is planned for its audio video (AV) division, but nobody knows who might do the buying or partnering.
And mounting criticism inside and outside the company may decide the fate of former chairman and current executive director Satoshi Iue, a member of the family that owns Sanyo. If the current management takes no steps to turn around money-losing divisions, expectations of a return to the black in fiscal 2006 might prove a dream.
With agreement reached late last year on a capital increase totalling about 300 billion yen underwritten by Goldman Sachs Group, Inc. of the United States, Daiwa Securities SMBC Co. Ltd. and Sumitomo Mitsui Banking Corp., accountants' doubts that the company will stay in business have disappeared for the time being. Sanyo Electric, however, faces a mountain of problems in restructuring its main businesses. Many say this is the penalty the company must pay for neglecting its own brand.
Semiconductor, AV, and Home-Appliance Divisions Falter
Structural reforms of Sanyo Electric Co. are still saddled with a mountain of problems.
In its interim earnings report released November 18 last year, Sanyo said it expected to post record consolidated net loss of 233 billion yen for the full term. Worse, when it became clear that the earnings figure ( i.e. forecast, not result) had already been revised downward twice, opinions were voiced at other electronics companies that what would be a second year of significant red ink for Sanyo was not only a direct result of the Chuetsu (Niigata Prefecture) earthquake of late 2004, which hit a semiconductor plant causing an escalation of impairment and inventory revaluation losses, but had other reasons. They pointed out that the semiconductor, AV and white goods (for example, refrigerators and washers) divisions are all doing poorly.
The mid-term management plan announced along with the interim financial results called for the company to take down its "general appliance maker" signboard and focus instead on four product lines: refrigerator showcases, digital cameras, mobile phones and lithium batteries. These are the lines the company stopped marketing under its own brand during the second half of the 1990s, because it could not match competing products of Matsushita Electric Industrial Co., Ltd. and Sony Corp.; it built up profitability instead as an OEM (original equipment manufacturer) and parts supplier. But the company was left far behind in the price competition that broke out after the collapse of the IT "bubble." Finished products bearing the Sanyo name fared even worse.
Only Chinese Firm Shows Interest in Partnering
Sanyo had said it would name partners for tie-ups on its semiconductor and AV divisions, but by the time its mid-term management plan was made public, none had been found; the only progress to speak of has been discussions for an alliance in white goods with Haier Group Co., the leading home appliance manufacturer in China. An executive of a Japanese home appliance maker commented that no Japanese firm would be interested in either a tie-up with or a purchase of a third-class brand. "Only Chinese companies aiming at advancing into the Japanese market might give attention to it," he said.
Another issue is loss of unifying momentum at the top due to lack of employee confidence in the management ability of Tomoyo Nonaka, CEO, a former journalist invited to join the company by Iue, and of President Toshimasa Iue, Iue's eldest son.
Under the leadership of Satoshi Iue Sanyo grew so strongly with the OEM strategy during the second half of the 1990s that its stock outdid that of Matsushita Electric Industrial, which was in the throes of restructuring at the time Matsushita, however, was biding its time, busily strengthening its system LSI and other semiconductor businesses into a platform for boosting its AV business spearheaded by plasma display panel (PDP) televisions. By contrast, Sanyo failed to make forward-looking investments in its own brand products. For this, the blame lay with Satoshi Iue.
Sanyo's shareholders' equity ratio has now slid into the 6% range. The 300 billion yen capital increase is expected to push the ratio up to about 16%. The last tranche is scheduled for March. Then Satoshi Iue will have to make a big decision about his future as executive director and owner.
