Published February 28, 2012
Japanese electronics conglomerate Panasonic Corp named Kazuhiro Tsuga, the head of its loss-making TV business, as its new president as the company heads for a record annual loss.
Tsuga, 55, who has been at the company for more than three decades, will replace Fumio Ohtsubo, who becomes chairman - still in a position of influence and a role that outgoing presidents in Japan usually take.
Founded as a maker of plugs almost a century ago, Panasonic has warned it will make a loss of 780 billion yen ($9.7 billion) in the year to end-March, as it counts the cost of restructuring its business, particularly in TVs. It will also write down 250 billion yen from its acquisition of rival Sanyo Electric.
Ohtsubo, who is vacating the president's office aged 66, rose to the top 6 years ago, but has seen Panasonic shares slump by more than two-thirds, double the decline on the benchmark Nikkei average over the same period.
Panasonic's management re-shuffle follows a similar move at domestic rival Sony Corp, which also predicts a hefty loss . There, consumer business chief Kazuo Hirai will take over from CEO Howard Stringer on April 1.
Together, Sony, Panasonic and Sharp expect to lose $17 billion this year alone, highlighting the savaging of Japan's electronics industry by foreign rivals led by Samsung Electronics, weak demand and a strong yen.
Warning of Panasonic's record loss forecast earlier this month, Ohtsubo insisted the costly revamp would repair the TV woes and bring about a V-shaped recovery in earnings.
"In the current market, I'm always very wary about companies talking about a V-shaped recovery," said Fitch Ratings' senior director Steve Durose.
"To the extent that Panasonic and others are making changes that are required, that's good. It's just that, particularly with the high yen, management are hamstrung. They have less control over their fate than they would like."
Tsuga takes over the operation of a sprawling conglomerate that makes products ranging from refrigerators, fax machines and TVs to light bulbs, bicycle pumps and hair dryers.
Even after Ohtsubo's latest restructuring axes 17,000 jobs, Panasonic still employs some 350,000 workers worldwide, three times as many as at Samsung, double Sony's workforce, and 60,000 more than General Electric, where annual sales are $30 billion higher.
Of its vast product range, only appliances, with a 6 percent operating margin, shows healthy profitability as it taps growing demand in emerging Asia for washing machines and other household devices.
Its overall lackluster performance adds up to a lost decade for the electronics pioneer - with a 10-year cumulative loss of close to 454 billion yen.
Like Hirai at Sony, fixing his company's TV business will be a priority and a challenge for Tsuga.
"The biggest risk is still the TV business. And the Japanese domestic market, which is the main source of profit for Panasonic, is not growing like before," said JP Morgan analyst Yoshiharu Izumi.
Analysts estimate the round of restructuring overseen by Ohtsubo will squeeze around 80 billion yen from operating costs in TVs. Tsuga, however, faces unrelenting erosion of demand.
By 2015, flat panel industry research company DisplaySearch expects annual global sales of liquid crystal TVs to contract by 8 percent to $92 billion. Even worse, plasma sets, a market that Panasonic dominates, will shrink 38 percent to $7 billion.
Exiting TVs is not really an option, said Shiro Mikoshiba, analyst at Nomura Holdings.
"Their sales are 8 trillion yen - and TVs are 1 trillion yen of that," he said. "If they cut that product, they need to add another, but they have completely nothing."
Shares of Panasonic fell 0.4 percent on Tuesday ahead of the announcement of the management shake-up. The Nikkei closed 0.9 percent higher.
($1 = 80.4600 Japanese yen) (Additional reporting by Mayumi Negishi and Chris Gallagher; Editing by Ian Geoghegan)