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Archive 2012 · Sony and Panasonic in trouble?
  
 
slungu
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p.6 #1 · Sony and Panasonic in trouble?


I somehow find this is the case with the industry altogether and not with a particular product. Somehow those are not good because this and the others because of that and in the end you are left on your good luck.


Nov 13, 2012 at 07:56 AM
philber
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p.6 #2 · Sony and Panasonic in trouble?


For reference, the comparable company that is definitely "best in class" when it comes to profitability and growth, Samsung, was upgraded by S&P to "A" in August. Better than Baa3, but much closer to it than to AAA. That puts Sony's rating in perspective IMHO. Beside the fact that Japanese investors aren't chained to agency ratings the way Western ones are anyway.


Nov 13, 2012 at 08:54 AM
eosfun
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p.6 #3 · Sony and Panasonic in trouble?


It has been said above, too many are putting too much into this "news" article. This is nothing more or less than an indicator of the willingness of capital investors to put their money into these companies. In a time where a part of the world is in economic recession or monetary crisis it's not that strange that the willingness to invest in consumer electronics companies is less than it is in a phase of economic growth and a period of boom. Investments in consumer electronics companies have always been rated lower than public loans and national debenture. Now that we live in time where even Greek loans and other state debenture is rated very low, it's hardly surprising that Sony and Panasonic have a low rate. This is not to trivialize the corporate troubles of these companies, but really it is not an indicator for immediate financial problems or a sign of the immediate demise of these companies.
Both companies have very different problems. Sony is in search of new corporate identity and wants to grow in the market of medical applications. They have their competitor Philips in mind which has been reasonable successful in the market of medical equipment with good margins and a high profile that fits to a company that isn't capable of competing at the end of the market where lowest production costs are the most important factor (like in the TV sets market now). And for all the photographers here: Sony bought Olympus mainly for that reason, and not because of their nice compact cameras or lenses! Olympus is a great brand in the medical sector with microscopes, endoscopes, and medical photography products. Olympus is a brand in trouble since their management scandal and burning money in the recent past. It's partly because of the finance structure behind this deal that Sony's rating went down. Sony went deep to buy a company like Olympus.
Panasonic has other troubles. I am less into that company than Sony and a few other Japanese companies. So take my words with a grain of salt. But Panasonic seems to suffer from their diversed brand image more than Sony. They seem to be less into success markets than the competition, like smartphones, tablets, laptops, and more into commodities (like kitchen equipment e.g.). I don't know enough about their specific financial structure. But I do agree with some posters above, that the Japanese industry and banking systems are much more interlaced than most of us are aware of and this mechanism is very important to be sure that a lower credit rating for Panasonic, just like Sony, does not mean the company is in urgent trouble. It's just a sign that it will be more expensive to attract foreign money, which is again not a strange thing in a time when consumption in Europe, US for the type of products these companies sell is in down cycle rather than an up cycle. Even in China the demand for this type of import products is being tempered. Add to that the negative image of Japanese brands and products in the most important global grow market since the riots in China a few months ago and you get an idea about why investors are less willing to lend their money to Sony and Panasonic.



Nov 13, 2012 at 10:24 AM
AhamB
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p.6 #4 · Sony and Panasonic in trouble?


eosfun wrote:
Olympus is a brand in trouble since their management scandal and burning money in the recent past.


Olympus seems to be doing better recently though: Japan's Olympus swings to $100 mn first-half profit



Nov 13, 2012 at 10:52 AM
eosfun
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p.6 #5 · Sony and Panasonic in trouble?


Right on the surface it is doing better again. Fortunately they write their reports in black ink again. But what I meant to say is they are less independent since the scandal and the share Sony bought was an important amount of money to restructure the company. Mind that Olympus lost about 75% of it's stock value since the scandal and the new management has a program of job cuts about 3000 employees, and scrapping 12 of 30 of it's factories. The implementation of that program has hardly started yet, so there is still a lot of issues to manage. Keeping labor unions and the government positively involved and satisfied is a challenge so to say, just like shutting down or selling those factories is no sinecure. The black figures again only tell part of the story I am afraid.


Nov 13, 2012 at 11:43 AM
Krosavcheg
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p.6 #6 · Sony and Panasonic in trouble?


From what I have been told by Japanese friends, Sharp is oozing money in TV division. They had massive success with AQUOS screens during the move to digital TV, but since it's ended the purchases of TV's declined.
They are still strong in office multifunction equipment department - nearly all convenience stores here use SHARP scanners/copiers.

What is likely to happen is SHARP, Sony and Panasonic selling off least profitable divisions...



Nov 13, 2012 at 03:22 PM
carstenw
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p.6 #7 · Sony and Panasonic in trouble?


eosfun wrote:
Sony bought Olympus mainly for that reason, and not because of their nice compact cameras or lenses! Olympus is a great brand in the medical sector with microscopes, endoscopes, and medical photography products.


Sony increased their share in Olympus to 11%, I believe, which is very far from buying it.



Nov 13, 2012 at 04:54 PM
michaelwatkins
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p.6 #8 · Sony and Panasonic in trouble?


Sony, unlike companies such as Research in Motion, isn't tied to one pony and is generating revenue to the tune of USD $20 billion per quarter. A lot of stronger and weaker companies would love to have that "problem".

Whatever restructuring has to happen, it seems more likely than not that there will be a Sony still on the scene for some time to come.

Since they appear to understand the market has shifted in imaging devices and are responding with more advanced models that by and large seem to be received well, it seems likely that Imaging won't become a cast-off during any impending restructuring.

That's all I need to know if I'm going to buy Sony imaging products. I'm not concerned.



Nov 13, 2012 at 09:48 PM
eosfun
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p.6 #9 · Sony and Panasonic in trouble?


carstenw wrote:
Sony increased their share in Olympus to 11%, I believe, which is very far from buying it.


Sorry Carsten, you are right of course. I didn't mean to imply Sony bought all of Olympus shares. Sony bought Olympus share at 50 billion yen (about 644 mio $) for an 11% stake in the whole Olympus company. The investment will be done in a joint venture the companies start in medical imaging. Products to be developed will be mainly surgical endoscopes. With the help of Sony technology the Olympus endoscopes will get 4K and higher resolution, just like 3D stereo imaging. In this joint venture Sony will have a 51% stake and they will appoint 4 of seven managing directors.

This is in fact the main objective of the cooperation between Sony and Olympus.

Besides the agreed investment in the joint venture, the companies declared a letter of intent to cooperate in the consumer camera market, where Sony will provide Olympus with their sensor technology, while Olympus will offer new lenses and mirror cell technology. This is not an investment, but rather a technology trade and even that is not a strong deal yet, but as said an intention to cooperate more closely in the near future. The current OM-D sensor already is a Sony sensor as we all know. So wether this intention will bring us new camera models or lenses for one brand or the other is still to be seen.

BTW, if you like to read interesting IR information in which the Olympus management projects their medium term future, you might be interested to read this: http://www.olympus-global.com/en/corc/ir/tes/pdf/nr120608.pdf



Nov 13, 2012 at 11:34 PM
carstenw
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p.6 #10 · Sony and Panasonic in trouble?


Interesting details, thanks. I knew that Olympus had about a 70% share of the endoscope market, but didn't realise how far-reaching this new agreement was. I would guess that Olympus needed the public vote of confidence from Sony more than they needed the actual cash, but I could be wrong there. Olympus has pulled off some very good moves in the camera market in recent months, even if it is a smaller part of their business.


Nov 13, 2012 at 11:45 PM
 

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Spyro P.
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p.6 #11 · Sony and Panasonic in trouble?


michaelwatkins wrote:
That's all I need to know if I'm going to buy Sony imaging products. I'm not concerned.

no I wouldnt worry about that either, worst case scenario some segment or function might be sold off or subocontracted etc, I dont believe Sony would ever stop supporting products or releasing new ones. And I dont think Sony will fail and even if they got close to that their Govt would bail them out in the end.

The only concern is for the possible loss of jobs and/or govt subsidies that will need to be paid to Sony, which is a vicious cirlce, and all that at a time when the global economic outlook is not that rosy. Sony is a big player and if it's showing weakness it's not a good sign for many economies.



Nov 14, 2012 at 12:26 AM
rattymouse
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p.6 #12 · Sony and Panasonic in trouble?


Spyro P. wrote:
no I wouldnt worry about that either, worst case scenario some segment or function might be sold off or subocontracted etc, I dont believe Sony would ever stop supporting products or releasing new ones. And I dont think Sony will fail and even if they got close to that their Govt would bail them out in the end.

The only concern is for the possible loss of jobs and/or govt subsidies that will need to be paid to Sony, which is a vicious cirlce, and all that at a time when the global economic outlook is not that rosy. Sony
...Show more

That is exactly right. Sony being in big trouble points to the enormous problems in Japan in general. I forget where, the Washington Post I think, recently did a story on the problems there. Japan is in such bad shape now, it is really impossible to overstate. Their government is beyond dysfunctional. They make the US look like a paragon of efficiency. Their banking system is a mess, with cooked books like crazy, held over from the crash of the 90's. It is really a house of cards there, being held up by the tiniest of support.

Demographically, Japan is in serious trouble too, with the average age of its citizens set to hit FIFTY by 2030 or something like that. Their birth rate is the lowest in the world I believe.

Finally, the average citizen no longer believes Japan has much future. The article interviewed all kinds of young professionals and they were absolutely down on their future and the future of Japan.






Nov 14, 2012 at 02:52 AM
Tariq Gibran
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p.6 #13 · Sony and Panasonic in trouble?


One side effect of Sony's situation for users here is that one can bet there must be some pretty serious pressure on all divisions to maximize profits to the nth degree. We are past the era of Sony buying market share by offering the sort of incredible value proposition that we saw with products like the a900 (in many ways rivaling and in some cases surpassing anything the competition offered for even twice the price upon it's introduction). Of course, Sony almost certainly lost money on every a900 sold. Now, we have the a99 selling for not much less than the a900 did...and, you can bet Sony makes money on every single one sold as that camera has to be substantially cheaper to make (lacking the expensive optical finder AND the very complicated mirror mechanism of the a900). I wonder what the profit margin is on the RX100 and the RX1? So, Sony should do well here given their expertise/ technical prowess in a changing market where they are already ahead of most of the competition. Let's just hope the Sony of old doesn't rear it's ugly head (overpriced products utilizing non consumer friendly proprietary software or hardware accessories).


Nov 14, 2012 at 02:54 AM
Spyro P.
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p.6 #14 · Sony and Panasonic in trouble?


I agree with Tariq, from a customer perspective it's a shame Sony is under pressure

Tariq Gibran wrote:
I wonder what the profit margin is on the RX100 and the RX1?

having been involved in the financial management of various innovative products, if I was going to take a guess I'd say it's next to zero or negative (after accounting for R&D and marketing). Typically the aim of such products would be long term/strategic (eg to be the first player in a market that is projected to grow, in this case the FF compact segment) and the focus internally would be mainly on market share in the expense of margin. Smaller companies dont have the luxury to sacrifice margin like that and this is the significance of giants like Sony and Fuji for us alt crowd: you can expect a lot of experimentation in seemingly unprofitable segments from them.

Leica does it too but they are an oddball company, they have a gigantic research expense to sales ratio, they were running losses for 10 years straight and yet their shareholder was happy to just keep funding them. Their accountant must've been pulling his hair out.



Nov 14, 2012 at 03:32 AM
S Dilworth
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p.6 #15 · Sony and Panasonic in trouble?


How could you possibly lose money on a hot-selling $600 camera with a $20 sensor, tiny seven-element lens, and not much else? I wouldn’t be shocked if Sony’s found a way, but how? The manufacturing costs must be extremely low compared to the selling price.


Nov 14, 2012 at 10:51 AM
theSuede
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p.6 #16 · Sony and Panasonic in trouble?


Leica margins (just the BOM and assembly, no R&D included) is just under 150%. Basically - what you're doing if you buy a 5000USD Leica product is to push 2000$ down an already pretty wealthy investor's pocket. Amongst larger companies, only Apple can sucker their customers for larger margins.

Sony has been trying to aggressively expand in to many areas (and failed in some...), and they have lost the TV division. This is what causes their current situation, which may be dire from an investors PoV, but not very so from a realistic long term PoV.

The total stupidity of capitalism often staggers me. While I agree on the rationales of it, the people in power behind it are often so incompetent in long term planning that they should be assigned places in some asylum. There's a very good reason why the US real estate crash cost the secondary victim (US treasury) about 700 billion dollars per year, and everybody actually knew that reason already long before the crash. They just chose to look the other way, since they were making so much money.
Overestimation of value crashes hard, but that doesn't seem to bother many big-time players on the field, even though the crashes in the hundred-billion class come every twenty years or so, always with the same cyclic period, and always with the same chain of events leading up to it. Next to come for USA will be the treasury bonds, and honestly there's not scratch to do about it. It will "just happen". A few years after that, it will be stock market again. That anyone is surprised (this is now the fifth time this cycle reiterates) surprises me.

Some places in eastern Asia will start stepping over the front edge of the same type of bubble very soon, many of them two, or even three times harder than USA.

Well, political moaning aside, Sony isn't in as much trouble as most outer "score" and "rate" firms want to project.
They just don't pull in enough money per year to satisfy the bottomless pit of "ever-expanding profit" that the forces that drive the cyclic crashing/rebuilding would want.

But what is important for the imaging division?
Sony continues to grow their share in CMOS sensors, and will continue their 9 billion USD ongoing (since 2006) investment in CMOS fabs and CMOS R&D. Output has just now past an area (normalized) of 60,000 300mm wafers per month, about ten times more than Canon. They have however closed one lens building plant completely, and are restructuring their middle management heavily at the moment.

The fact that they still invest heavily, and that their R&D departments are still well funded (and backed) by both investors and the board of directors show that Sony has got very little of the "panic" some people seem to want to force them into.

R&D to sales volume ratio:
Microsoft: 17%
Sony 8.7%
Apple 2.7%

The fact that Apple now spend significantly more (both in next years budget plan and in actuality this year!) on lawyers than they do on R&D should be worrysome, to say the least. Their profit stands and falls with their almost-Veblen religious artifact followers - one slip-up here and they might be off the map. Remember that the very recent dip in share value (140 billion dollars the last two months...) is more monetary value than the entire accumulated profit of Apple as a company in history - since they started out in 1977... That's why they NEED money in the bank, should that have happened and they didn't - disaster. Companies that stand on on one leg are easy to topple, especially if that leg is artificial. And the market "values" and "ratings" are indeed very highly artificial.

If they were reality based and rational, stuff like stock market crashes, interest rates, housing price crashes and so on would never happen. They happen because some people drive estimates and expectations through the roof, in the interest of a never-ending increase in income (which of course is a physical impossibility...)

Companies that stand on hundreds of wobbly legs where not all of them work right will stand through stuff that would wipe less broadly based but a hundred times higher rated and valued companies clean of the chart.



Nov 14, 2012 at 12:02 PM
thrice
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p.6 #17 · Sony and Panasonic in trouble?


S Dilworth wrote:
How could you possibly lose money on a hot-selling $600 camera with a $20 sensor, tiny seven-element lens, and not much else? I wouldn’t be shocked if Sony’s found a way, but how? The manufacturing costs must be extremely low compared to the selling price.


You do not understand the costs of business.
Also, $20 sensor? The sensor is the size of a current microprocessor, and fabricated the same way with more precise height restrictions and involving 3-dimensional surface toppings. Show me a $20 current CPU from Intel or AMD?

The camera is assembled in Japan, labour there is not cheap.

I have also seen many of the 'true' costs of many Sony products before factoring in representation, support, advertising and other factors many ignore. I can tell you, the margins are nowhere near what you imagine.

The RX100 is ONE out of about 8000 products Sony currently manufacture, and definitely profitable compared to the majority of them (especially TV, which accounts for more than 50% of their business).



Nov 14, 2012 at 12:25 PM
thrice
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p.6 #18 · Sony and Panasonic in trouble?


theSuede wrote:
Leica margins (just the BOM and assembly, no R&D included) is just under 150%. Basically - what you're doing if you buy a 5000USD Leica product is to push 2000$ down an already pretty wealthy investor's pocket. Amongst larger companies, only Apple can sucker their customers for larger margins.


You also ignore (and admit to ignoring) all factors of business other than manufacturing and then call it a 150% margin. *sigh*



Nov 14, 2012 at 12:26 PM
theSuede
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p.6 #19 · Sony and Panasonic in trouble?


I usually don't argue about religion, but face the facts:
Their reported profit margin is 30%
Their under-the-table profit margin is another 20% (investor "costs", strange mortgaging costs on equipment and so on).
Their base amount of money to play around with to make a real product is less than half of the retail price (Ex VAT). Manufacturing costs and freight/marketing/R&D is almost one third of that, since they're so (relatively) small. The rest is material.

Sony now try to approach that type of customer with the RX1, but at half of the Leica profit margin - still people scream bloody murder.
This, even though you get a lens construction that Leica would charge you at least 2500€ for - most probably more! - included in the camera. That BOM and MFG cost of that lens is definitely not LOWER than on a 50 summilux. I've seen some of the base specs.



Nov 14, 2012 at 12:54 PM
S Dilworth
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p.6 #20 · Sony and Panasonic in trouble?


Hey thrice, it was a question, not an invitation to bicker.

Nor did I say anything about the costs of doing business. Unlike a fair few in this thread, I freely admit to not being a business expert.

I just wondered – precisely because I’m not an expert – how there could be doubts about the profitability of a product with seemingly low manufacturing costs, a high selling price, and high popularity.

I know success in the tech sector is predicated on low manufacturing costs and high sales. What’s Sony doing wrong with the RX100?

The $20 sensor cost was a guess based on the widely estimated APS-C sensor costs of about $30. The Sony 1"-type sensor is about one-third the area of an APS-C sensor. The marginal cost might not be exactly $20, but it’s surely more than $5 and less than $50. The camera retails for $648 at B&H Photo today.



Nov 14, 2012 at 01:08 PM
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