Japan's electronics multinationals

Panasonic negotiates to acquire SANYO to form US$ 110 billion group

SANYO suffered from Niigata Chuetsu earthquake of Oct. 23, 2004

Panasonic attracted to SANYO’s battery and energy technologies

On November 7, 2008 Panasonic (“Ideas for Life”) and Sanyo (slogan: “Think GAIA”) announced that they entered negotiations which can potentially lead to an acquisition of Sanyo by Panasonic to form one of the largest electronics groups in the world. Sanyo’s market capitalization is currently US$ 3.9 billion and Panasonic’s is US$ 38 billion, combined sales are about US$ 110 Billion.

The Niigata Chuetsu earthquake of Oct. 23, 2004 caused an estimated total of US$ 30 Billion in damages, damaged Sanyo’s semiconductor factory and contributed to large losses at Sanyo. As a consequence Daiwa Securities SMBC Co, Sumitomo Mitsui Banking Corporation and Goldman Sachs hold preferential shares in Sanyo with voting rights corresponding to 70% of outstanding shares. The current global financial crisis contributes to the potential acquisition, since Daiwa, Sumitomo-Mitsui and especially Goldman Sachs are motivated to sell their preferred shares when contractually possible, and it is also these three financial institutions which will have strong influence on whether this transaction will take place. Goldman Sachs is reported to have said that the price will decide.

Annual revenues of Japan’s electrical groups:

Panasonic and Sanyo combined (red curve in the figure below) will be one of the largest electrical groups globally. Note that Japan’s electrical groups showed strong growth from FY 2003.

Revenues of Japan's top electronics manufacturers
Revenues of Japan’s top electronics manufacturers

Annual operating margins of Japan’s electrical groups:

Panasonic’s high operating margins helped Panasonic to reach a position of financial strength, enabling this acquisition. Expect more acquisitions by Japanese electrical companies.

Electrical differentiation:

High margin (> 5%) vs low margin (The figure below shows that there is a clear differentiation of Japan’s electrical groups: Mitsubishi Electric, Sharp and Panasonic have high margins – above 5%.

The other electrical groups (Fujitsu, Toshiba, Sanyo, Hitachi, Sony and NEC) have chosen a low-margin path (margins below 4%).

There is a clear gap (4% to 5%) separating these two fields. Panasonic’s margin will suffer with a Sanyo acquisition – expect Panasonic management to bring Sanyo up to Panasonic margins.

Operating margins of Japan's top electronics manufacturers
Operating margins of Japan’s top electronics manufacturers

Globalization of Japan’s electronics groups:

With 36.8% of sales outside Japan, Sanyo is more globalized than Panasonic. NEC, Fujitsu and Mitsubishi Electrical still have much way to go to globalize.

Globalization ratios of Japan's top electronics manufacturers
Globalization ratios of Japan’s top electronics manufacturers

Read more in our report: “Japan’s electrical companies”

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Japan's electronics multinationals Mobile

SANYO – NOKIA CDMA2000 JV (Interview for CNBC)

Was interviewed today about the announced JV between SANYO and Nokia for CDMA2000 phone handsets (I added some corrections here):

[Q1] How will SANYO benefit from this, since they are the ones who have the technology, what do they hope to gain from working with Nokia? Or is this merely a way to reduce costs for the company, since it’s struggling to remain profitable?

It is clear to me that NOKIA will benefit, since NOKIA needs 3G know-how from Japan because all markets where NOKIA is dominating are behind compared to Japan in 3G development, and also NOKIA needs a lot of other advanced technology from SANYO.

Of course who benefits depends both on the contract conditions and the relative strengths of the parties.

It’s clear that financially NOKIA is the much stronger of the two. NOKIA is financially very strong, while SANYO is in a very weak position, so it’s a very clever move for NOKIA.

[Q2] Is it already too late for Nokia to make such a move in the CDMA 2000 market, with strong players like Samsung, LG and Motorola already entrenched in the market?

I don’t think it’s too late – both Motorola and NOKIA demonstrated rebounds recently with new design initiatives such as Motorola’s RAZR and NOKIA did a successsful turn-round by introducing clam-shell phones a trend which NOKIA had missed by not being linked sufficiently into Japan before.

To succeed you need to make spectactular phones which match consumer needs, and you need the financial and manufacturing power as well as the brand. The combination of SANYO‘s technology with NOKIA’s financial strength and brand, as well as NOKIA’s efficient supply chain are a good basis.

[Q3] When would you expect to see the benefits of such a move to emerge?

I think one should not underestimate the cultural risks. NOKIA and SANYO have extremely different corporate cultures, and we have seen many cases where corporate cultures lead to great difficulties.

I think the key will be to manage the difference in corporate cultures of two very proud companies. Locating the JV in the USA might help.

SONY-Ericsson has demonstrated that such a JV can be successful. In the case of SONY-Ericsson it has taken several years for the JV to succeed. If one takes SONY-Ericsson as a measure, then it might take a couple of years (3-4 years) for this JV to succeed. If it’s faster than that it will be a positive surprise.

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Japan's electronics multinationals

About SANYO (CNBC and Wallstreet Journal)

CNBC interview on SANYO (Gerhard Fasol)

Wednesday Nov 16, 2005, I was interviewed live on CBNC’s Asia Market Wrap with Christine Tan about SANYO’s plans to sell it’s financial division. Some of my friends asked me what I sad in this program – so here is my transcript from memory.

Outline of Gerhard Fasol’s interview on CNBC about SANYO

Fundamentally I am very hopeful for SANYO. SANYO has some fantastic technologies and makes many fantastic electronics products. For example, SANYO makes some of the most fantastic mobile phones here in Japan for KDDI, and I heard just today that SANYO phones came top in customer satisfaction in the USA. Mr Kawahara at Kenwood and Mr Ghosn at Nissan and Ripplewood at Shinsei Bank have shown that it is possible to turn round Japanese companies in a very short time. What NISSAN, Ripplewood and Shinsei did, was to concentrate on their essential core business, on their strengths and sell or spin out all non-essential businesses. Nissan used to be in Aerospace and real estate business and lots of other areas which have nothing to do with cars. In the same way, I see much hope for SANYO, if SANYO focusses totally on core strengths and technologies.

On the other hand, we have a corporation here with about US$ 20 billion in sales making US$ 1 billion loss last year and US$ 2 billion loss this year. So we clearly have an unstable situation. SANYO must take drastic action to sell non-essential assets and it’s in this light that SANYO has plans to sell the financial business, which is essentially a general banking operation which is not at all SANYO’s core business and strength.

Christine Tan: “So which business areas do you think SANYO should sell”

GF: I am of course in no position to tell SANYO management what to do, however their steps to sell non-core assets is certainly a good start. Looking at Kenwood, Nissan and Shinsei Bank and many others I can see many examples where excellent management has turned around Japanese companies in a very short time. I am confident that with the right management this can also be done at SANYO.

See also: article in Wallstreet Journal about SANYO

For general background see Gerhard Fasol’s lecture at Stanford University

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