As Panasonic TVs flicker, new chief offers tough love

A man looks at a line of Panasonic

A man looks at a line of Panasonic TV products at an electric store in Tokyo, Japan. (May 11, 2012) (Credit: AP)

In today's world of fast gadgets and fickle consumers, managers at Panasonic Corp, the sprawling, and struggling, Japanese electronics manufacturer, still refer to a 250-year business plan their founder wrote between the two world wars.

The 10-generation road map exhorted staff to end poverty and make consumer goods as abundant and cheap as tap water — but probably didn't envisage selling millions of TV sets at a loss.

Under a new president, Kazuhiro Tsuga, 55, Panasonic is shaping up for a post-TV future, say company executives and industry analysts.

Inheriting combined losses of more than $15 billion in the past four years and a market value slump of more than 80 percent to below $20 billion, Tsuga has promised to revive Panasonic's fortunes as Japan's consumer electronics industry slips further behind nimbler rivals in South Korea and Taiwan.

Tsuga is expected to reveal more detail of his strategy as early as Monday.

This will involve painful job cuts in a bloated workforce of 330,000, shifting more production overseas and focusing more on white goods such as fridges and washing machines and solar panels and other energy-saving appliances.

In a series of interviews, Tsuga's deputies told Reuters they have been preparing restructuring plans that are now ready to launch to support his reform mission.

Tsuga was not always an obvious choice to lead Panasonic's revolution. He spent 25 years in research and development before being plucked in April 2008 to lead the automotive devices business — making navigation systems, headlights and console electronics — just as the financial crisis began to bite and clients took flight.

Tsuga embarked on a charm tour of auto executives in Europe and the United States, laid off workers and shuttered production including a plant in Atlanta, Georgia. Within months he turned his unit's $100 million annual loss into a $250 million profit, before moving to consumer electronics where he closed a plasma TV plant and axed 1,000 jobs.

It was the kind of tough love that produced results, and has catapulted Tsuga to the top job — at a time when some brutal restructuring is needed.

Ahead of taking up his new post, Tsuga toured the factories and offices of a company that even by corporate Japan's conservative standards is bound by tradition — from a collective early morning calisthenics work out to singing the company anthem and working in offices where a picture of founder Konosuke Matsushita is never far away.

Tsuga, himself, relishes the challenge.

“When I moved to audiovisuals, I was in charge of a business with several times the revenue of auto devices. As president, I head a company with several times that again,” he told reporters last month. He later told analysts he would not shy from “wielding a knife” and would pare costs where needed even after the loss of 36,000 jobs in the previous year. He has already said he will streamline the company's headquarters, with deep cuts expected in the 7,000 head count there.

Analysts said Tsuga had made a “positive impression” as he set out to review Panasonic's product and sales strategies and regain profitability. “We will be waiting to see how far he can push reform across the whole company,” said Nomura Holdings analyst Shiro Mikoshiba.

Those reforms will see Panasonic shift its focus from the world's living rooms to its kitchens, and, in other areas, step back from the consumer and deal more with industry.

NO TV EXIT

Panasonic's consumer electronics chief Mamoru Yoshida knows he has to staunch the crippling losses that have seen the Viera brand trampled by Samsung Electronics and LG Electronics — but the company won't pull the plug on its TV business.

Two years ago, the business, which employs 33,000 workers, sold 20 million TVs. This year, it expects to shift 15.5 million.

“When I became head of TV in April last year, one out of every three sets sold at a loss. We won't sell loss-making sets anymore,” Yoshida told Reuters at Panasonic's headquarters in Osaka, historically Japan's commercial center and second city.

In the fiercely competitive TV market, Panasonic will target shoppers in emerging economies who are less able to afford premium sets. “Thirty-two inch and smaller represent 80 percent of all TVs,” noted Yoshida.

As output shrinks, there will be cuts among fixed-term contract staff who make up the bulk of the overseas workforce, though existing full-time staff will be spared for now, he said.

At the appliances business — Panasonic's most profitable and on course this financial year to overtake consumer electronics by revenue — chief Kazunori Takami aims to raise overseas revenue by a fifth this year, selling more fridges, washing machines and appliances to the emerging middle classes in developing economies.

India is still growing and growth in Indonesia and Myanmar is also fast,” Takami said at his office in an air conditioner plant in Kusatsu, in western Japan.

In a sign of the shift to white goods — where it competes with Whirlpool, Electrolux and LG Electronics — Panasonic for the first time plans to display its washing machines and fridges alongside its TVs at the IFA 2012 consumer electronics trade show in Berlin in September.

Though Panasonic's most profitable business, employing 41,000 people, it will not be immune to Tsuga's cost cutting. Takami plans to merge some of the 59 plants and offices it operates around the world, nine of them in Japan, to save money, he revealed.

“If smaller sites are inefficient we will want to close them and amalgamate their function at one location,” he said. “I'm still not sure what Tsuga has in mind. When I see him at meetings my impression is that his ideas are evolving week by week.”

Takami conceded Panasonic's 330,000 workers “seem a lot.”

ENERGY BOOST

Masato Ito, who heads Panasonic's energy unit, which was bulked up by the 2010 acquisition of Sanyo, is also looking overseas for growth.

Hobbled by a strong yen that favors Korean and Chinese rivals, Ito predicts most of his production will be outside Japan within three years. By then, its production of lithium car batteries in China will likely top 60 percent of the company's total, around double today's level, and output at a new solar panel plant in Malaysia will be on a par with Japan.

This could mean job losses among the energy division's 9,000 workers in Japan, Ito said at the Osaka plant built by Matsushita in 1933.

The head of Panasonic's Eco Solutions business, Shusaku Nagae, whose 45,000 workers produce air conditioners, lights and a range of household fixtures, is also preparing for a jobs squeeze. “Our focus now is growth, and as we concentrate on that we will find businesses we don't need, and that could mean restructuring and layoffs,” he told Reuters during a trip to Tokyo from his Osaka base. As Panasonic's second-in-command, Nagae's support for Tsuga's reforms is crucial.

Nagae is looking to raise overseas sales to a fifth of his division's total by 2015 — partly through acquiring sales networks in the United States and Europe.

The group's electronic devices business, too, expects to bear its share of cost-cutting among its 100,000 workforce making semiconductors, capacitors, printed circuit boards and other components. “To keep ourselves viable we will continue with restructuring without pause,” the division's chief Toshiaki Kobayashi said at an investor relations event last month.

Tsuga's reforms will not mean ditching the founder's business blueprint. Reverence to the former bicycle repairman who fashioned Panasonic is on display at a replica of his first factory in Osaka, its entrance a copy of the gate to his childhood home. Inside is a recreation of his workshop where he crouched on reed mats making extension plugs.

“Some things you have to change and some things you mustn't,” said appliance chief Takami. The morning rituals expected in Japan are unsuitable for workers overseas, he agreed. “We must, nonetheless, retain the business philosophy of our founder. It's a common understanding that all our global employees should have.”

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