Japan's Panasonic Corp cut its annual net profit forecast by 90 percent and announced plans to restructure as the global financial crisis dampens sales of TVs and other electronics.
Panasonic, the world's No 1 plasma TV maker, plans to book 130 billion yen ($1.4 billion) in additional restructuring costs for the year to March to respond to a downturn that has already forced rivals such as Sony Corp to lower their outlooks.
The new forecast, which is far below market expectations, surprised investors who had seen Panasonic as relatively well positioned to cope with the global slowdown thanks to its efficient output structure and diversified business portfolio.
Panasonic, formerly known as Matsushita Electric, now expects its net profit to trickle in at 30 billion yen in the current business year, down from its previous forecast of 310 billion yen and from a 281.88 billion yen profit a year earlier. The new forecast, the smallest profit in six years, falls well short of the consensus of 256 billion yen in a poll of 19 analysts by Reuters Estimates.
"Changes in the business environment over the past few months came with unprecedented intensity and transformed our operational conditions drastically," Panasonic director Makoto Uenoyama told a news conference on November 27. Panasonic has pursued a vertically integrated production model, in which a company makes key components in-house and assemble them into finished products to cut costs and gain operational flexibility, instead of buying them from outside. That business model works well when demand is strong and production facilities are highly utilised, but makes it difficult to cut fixed costs in the phase of economic downturn.
"This image of Panasonic leading others in profitability and marketing prowess seems to have eroded a little," Mizuho Investors Securities analyst Nobuo Kurahashi said. "The negative side of its strategy of promoting vertical integration and achieving economies of scale is getting conspicuous." Panasonic aims to achieve profit growth in the year starting April 2009 and the restructuring steps are expected to help the company cut costs by 50 billion yen in the new year, Uenoyama said.
The company cut its operating profit forecast by 39 percent to 340 billion yen for the year to March and lowered its sales outlook by 7.6 percent to 8.5 trillion yen. The revisions were expected after a source familiar with the matter said the maker of Viera flat TVs and Lumix digital cameras was likely to cut its annual operating profit forecast by at least 30 percent.
Sony, the maker of Bravia flat TVs, Cyber-shot digital cameras and PlayStation game consoles, last month cut its operating profit forecast by 57 percent to 200 billion yen for the year to March. Sharp Corp also lowered its profit forecasts last month, hurt by sluggish sales of mobile phones in Japan.