market caps of Japan's electronics industry vs US and Korea

Japan’s electronics giants – FY2012 results announced. 17 years of no growth and no profits.

Japan’s electronics giants: as large as the economy of Holland, but 17 years of stagnation. No growth & no profits.

Daniel Loeb: SONY’s uninvited guest gives Japan’s business culture a jolt

Japan’s electronics giants combined are as large as the economy of Holland, but did not grow for about 17 years, and on average lost money all these years: no growth – no profits.

SONY abruptly created global headlines (e.g see New York Times), because US activist investor Daniel Loeb publicly encourages SONY’s CEO to speed up change. Mr Loeb’s Third Point LLC fund is SONY’s biggest shareholder at this time – surprising many, maybe even surprising SONY’s CEO, Mr Hirai. Mr Loeb’s encouragement was well timed: Mr Hirai’s will present SONY’s new strategy on May 22.

As we analyzed in our newsletter a few days ago and in more detail in our Electronic Industry Report, which was picked up by EE-Times and by the BBC, SONY recently earns its income, and offsets losses from the electronics and mobile phone businesses, mainly from asset sales and from subsidiary SONY-Finance – which sells life-insurance and credit cards. Therefore many believe that iconic SONY is undervalued, and needs much deeper and more fundamental change.

Japan’s iconic Big-8 electronics giants posses amazing technologies and engineers. However, their current situation is very much less than amazing, indicating huge opportunities. A few days ago the Big-8 all announced their results for FY2012, which ended on March 31, 2013 – lets look at the results together here.

long slow path to recovery for Japan's "Big-8" electronics giants
long slow path to recovery for Japan’s “Big-8” electronics giants

Japan’s electronics giants: Averaged over the last 15 years, Japan’s Big-8 created net losses of YEN 104 billion/year

Subtracting losses from profits, and averaged over the last 15 years, Japan’s Big-8 created net losses of YEN 104 billion/year (US$ 1 Billion losses/year)

For the last two financial years the Big-8 created net losses as follows:

Financial Year ended combined net losses
FY2012 March 31, 2013 YEN 1143 Billion (US$ 11 Billion)
FY2011 March 31, 2012 YEN 909 Billion (US$ 8.9 Billion)

Hitachi’s smart transformation

Hitachi’s smart transformation (find an overview in our report) indicates that change can bring rapid improvement.

Japan's "Big-8" electronics makers combined are about the size of Holland's economy - with one difference: Holland's economy grows, but Japan's electrical giants shrink and lose money at the same time
Japan’s “Big-8” electronics makers combined are about the size of Holland’s economy – with one difference: Holland’s economy grows, but Japan’s electrical giants shrink and lose money at the same time

No growth

No growth: combined revenues of the Big-8 fell by YEN 1510 Billion (US$ 15 Billion) in the 15 years between FY1997 and FY2012 (assuming constant value YEN)

Many expect that “smart transformation” and globalization, and opening-up to the global society – combined maybe with a rejuvenation of “the Japanese model”, can release the potential for growth, which has been held back for 15 years.

In our electronic industry report we compare the Big-8 electronics companies with the Big-7 electronic parts manufacturers and show that their situation is much better, however the parts manufacturers face decreasing margins, also indicating the need for changing the business models and/or operations.

Japan's "Big-8" may be seen as undervalued
Japan’s “Big-8” may be seen as undervalued

Japan’s Big-8 electronics makers combined have far lower market capitalization than Apple, Microsoft, Google or Samsung

We produced the figure above for the presentation at the Foreign Correspondents Club in Tokyo about the “Apple-Samsung Patent War and Impact on Japans Industries”. We used the figure above to visualize the might of the Apple and Google/Samsung camps vs Japan’s Big-8 today. 15 years ago, the power of Apple vs Samsung vs Japan’s Big-8 was exactly opposite.

There is no reason why Japan’s electronics sector cannot regain global strength and value – IF absolutely necessary changes are made. This situation represents outstanding opportunities, which no doubt are attracting Mr Loeb and his Third Point fund, and others.

Understand Japan’s electronics sector: top 8 giants, and top electronic component makers

Study our report “Japan electronics industries: mono zukuri” (approx. 230 pages, pdf file)

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