Panasonic to challenge South Korea with cost cuts

Panasonic, the Japanese electronics giant, is planning further cost cuts to compete with South Korean rivals including Samsung, after stiff price competition in televisions and a stronger yen hurt its quarterly profit.

Higher material costs also contributed to the 5.6 per cent fall in third-quarter profits, offsetting help from a Japanese government incentive scheme during the crucial year-end period.

Panasonic - the world's fourth-largest television maker after Samsung, LG Electronics and Sony - is struggling to gain a foothold in smartphones and computer tablets, a market dominated by Apple and with Samsung emerging as a key rival.

Managing director Makoto Uenoyama said: "The yen gets stronger and stronger and competition with Korean and Chinese makers will get fiercer and fiercer.

"From October onwards, we faced substantial price falls (for TV sets] all over the world, with competition from Samsung and LG."

He said the company had measures in place from last month to cut the manufacturing costs of new TV models by using a modular production system in Asian plants and using more parts made in Asia.

Investors are eyeing Panasonic's ability to restructure quickly and show benefits after its buyout of subsidiary Sanyo Electric.

The deal is aimed at sharpening the company's focus on environmental technologies such as solar power systems and rechargeable batteries, where Japanese makers believe they retain an advantage over Korean rivals.

Panasonic is expected to provide an update on the integration plans later this year.

Koichi Ogawa, chief portfolio manager at Daiwa SB Investments, said: "It's difficult to evaluate earnings for Panasonic as the company is still in a phase of transition after its buyout of Sanyo.

"Its long-term strategy is firm as Panasonic will focus more on batteries, but it looks hard for Panasonic to make big profits as its business is still weighed heavily in consumer electronics," he added, noting that heated competition in the flat-TV business is hitting all players.

Panasonic reported an operating profit of 95.4 billion (722 million) for the period from October to December, lagging the average forecast of 109.1bn from a poll of six analysts by Thomson Reuters.

Japanese consumers rushed to buy home appliances and electronics in November, ahead of cutbacks to a government scheme that offered incentives for buying environment-friendly electronics.Panasonic's Uenoyama said domestic sales of home appliances had slumped in December following a peak the previous month, but that he expected a gradual recovery.

The incentives are set to be removed next month, potentially further weakening consumer appetite for big-ticket goods.

The maker of Viera TVs and Lumix cameras left its full-year profit outlook at 310bn, compared with the consensus of 328bn in a poll of 20 analysts. Operating profit for the year to March was 190bn.

Rival Sony is today expected to post a 15 per cent fall in October-to-December profit, also hurt by a stronger yen and tough price competition in the flat TV market.

The consensus estimate for Sony's quarterly profit is 124.2bn in a poll of nine analysts, compared with a 146.9bn profit in the same quarter a year earlier.

Shares in the company have fallen more than 20 per cent since an 18-month high reached in March last year.