Panasonic Corp.'s decision to pull the plug on television set production will cost about 514 billion yen ($6.57 billion), plunging it deep into the red.
The firm had forecast a net profit in the current fiscal year of 30 billion yen, but revised that forecast on Oct. 31 to a net loss of 420 billion yen on a consolidated basis, just short of the 427.7 billion yen net loss recorded in fiscal 2001 after the tech-stock bubble burst.
The company's workforce, including staff of affiliate Sanyo Electric Co., will be cut in the current fiscal year from 360,000 as of the end of September to 350,000.
The switch from in-house TV production is expected to be the major factor in the huge reverse. Panasonic's state-of-the-art flat-panel TV production lines in Amagasaki, Hyogo Prefecture, in which the company invested about 200 billion yen, will be halted and the firm will amalgamate its semiconductor production plants.
An extra 400 billion yen in expenses to downsize and abandon production facilities will be added to the bill, bringing total losses from the curtailing of TV production to 514 billion yen.
The move amounts to a U-turn for the electronics maker, which had been pursuing a strategy of keeping all of its TV production in-house. Panasonic expected that strategy to create economies of scale and shorten product development times, helping it stay ahead of its rivals in South Korea and Taiwan, but the rapid appreciation of the yen and falling prices of televisions killed that plan.
When the company was planning its most advanced TV production plants in Japan, the yen was trading at about 110 yen to the dollar. Recently, the exchange rate has been hovering under 80 yen to the dollar, undermining the profitability of the plants.
As part of the downsizing, Panasonic will end production at two domestic plants making plasma panels for TV sets and amalgamate production into a single plant. The company's plant in Mobara, Chiba Prefecture, which makes liquid crystal displays, will be sold and production will be moved to the Himeji plant.
The company will also merge plants engaged in TV set assembly and reduce semiconductor production.
The company also plans to end new investment in domestic production of storage batteries and solar panels, which are being positioned next to TV production as key product lines for the company, and shift production overseas.
Company officials also announced on Oct. 31 that Seiichiro Sano will be replaced by Masato Ito as president of Sanyo Electric, as of Jan. 1.
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