Panasonic stock plunges after dismal earnings forecast

November 01, 2012


Investors dumped their shares in Panasonic Corp. on Nov. 1, a day after the electronics company sharply revised its forecast and projected a group net loss of 765 billion yen ($9.56 billion) for the year ending in March.

The Tokyo Stock Exchange halted trade in Panasonic stock when its price fell by the limit to 414 yen, the lowest since it bottomed out at 412 yen in 1975.

Panasonic President Kazuhiro Tsuga, who took the helm only in June, announced the bleak forecast at a news conference on Oct. 31. He also said Panasonic would not be paying dividends for the first time in 63 years.

“We are in an abnormal situation,” he said. “We have to make a fresh start based on that recognition.”

The Osaka-based company in July said it expected to post a 50-billion-yen profit for the current fiscal year. The sharp downgrade in its earnings forecast in such a short period rattled investor confidence in the company.

For the previous fiscal year, Panasonic reported a consolidated net loss of more than 772.1 billion yen, the second largest figure of any Japanese company. That loss coupled with the expected loss for this fiscal year would effectively wipe out all of Panasonic’s net profits for past 20 years.

Tsuga said he thinks the company’s structure is sound, but it "needs to alter its priorities."

He said Panasonic would focus more on increasing profitability than sales growth.

But the company’s struggles are expected to continue in the coming years amid the changing and harsher business environment.

Its South Korean rivals in the market for lithium batteries have maintained an edge in terms of costs. And a boycott of Japanese products in China over the Senkaku Islands dispute is casting a pall on Panasonic’s overall sales of its mainstay TVs and consumer electronics.

Tomoichiro Kubota, a senior market analyst at Matsui Securities Co., said Panasonic has been weighed down by its large investments in the TV business because sales of flat-panel TVs proved poor.

“It should raise the ratio of panels sold to others by expanding tie-ups with other companies,” Kubota said. “It also needs to take production facilities overseas from Japan to slash costs.”

For years, Panasonic has paid the price for wrong decisions. Since fiscal 2008, the company has posted annual net profits just once, in fiscal 2010.

Panasonic’s bottom line has been hit hard by the plunge in the estimated value of Sanyo Electric Co., which it acquired in 2009.

The company will write off 237.8 billion yen in “goodwill” related to Sanyo’s solar panel and lithium-ion battery businesses due to low profitability.

“Panasonic wanted to appeal to the public that it is finally clean with all write-down risks removed,” a senior Panasonic official said.

In addition, Panasonic will report 117.7 billion yen in restructuring costs for other businesses with paper losses, and incur a provision of 412.5 billion yen for income taxes.

Panasonic re-entered the European market for mobile phones in April this year, expecting a rise in demand for smartphones, but it has already decided to pull out.

Tsuga acknowledged the company overestimated the business prospects in the smartphone market.

“We believed that we would be able to make profits by selling uniform smartphones around the world, but we now realize that Japanese consumers are seeking functions that are unique to the local market,” he said. “We cannot expect synergy of our smartphone business (between Japan and Europe).”

After Panasonic recorded a net loss for fiscal 2011, the company has been trying to shed jobs through voluntary retirement while consolidating its production bases.

It is also expected to shut down factories overseas, including those in the Czech Republic and Malaysia.

Panasonic directors will take pay cuts of up to 40 percent from November, while managers will see a 35-percent reduction in their winter bonuses.

The largest consolidated net loss by a Japanese manufacturer was 787.3 billion yen recorded by Hitachi Ltd. for fiscal 2008.

But after shifting its financial resources to heavy electric machinery, Hitachi posted more than 200 billion yen in group net profits for fiscal 2010.

Panasonic also said on Oct. 31 that its consolidated sales for the first half of the current fiscal year totaled 3.64 trillion yen, a year on year decline of about 9 percent.

The group net loss for the same period was 685.1 billion yen.

(This article is based on reports by Yoshihiro Yokomakura and Satoshi Seii.)

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Kazuhiro Tuga, president of Panasonic Corp., listens to questions from reporters on Oct. 31. (Ryo Kato)

Kazuhiro Tuga, president of Panasonic Corp., listens to questions from reporters on Oct. 31. (Ryo Kato)

  • Kazuhiro Tuga, president of Panasonic Corp., listens to questions from reporters on Oct. 31. (Ryo Kato)

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