Thursday, December 17, 2009
Japan's Galapagos effect on market caps
Some of Japan's electrical corporations have remarkably low market capitalizations: General Electric has 1.6 x more sales than Hitachi, but has 13.3 x the market capitalization. Philips has 1/3 x Hitachi's sales, but has 2.2 times higher market cap.
Low market values do not help big recent public share offerings:
Hitachi raising YEN 250.7 Billion (US$ 2.8 Billion),
Toshiba raising YEN 298.7 Billion (US$ 3.3 Billion), and
NEC raising YEN 115.5 Billion (US$ 1.3 Billion).
Low valuations increase the pressure for change in Japan's electrical sector, and the SANYO-Panasonic merger is an indication of changes to come.
In the "post-Galapagos committee" we are working with some of Japan's brightest leaders on understanding the reasons and on how to drive this change.
Benchmarking Japan's electrical companies - Philips= 1/3 x Hitachi's sales and 2.2 x Hitachi's market cap:
GE= 1.6 x Hitachi's sales and 13.3 x Hitachi's market cap
More in our report on Japan's electrical industries.
Low market values do not help big recent public share offerings:
Hitachi raising YEN 250.7 Billion (US$ 2.8 Billion),
Toshiba raising YEN 298.7 Billion (US$ 3.3 Billion), and
NEC raising YEN 115.5 Billion (US$ 1.3 Billion).
Low valuations increase the pressure for change in Japan's electrical sector, and the SANYO-Panasonic merger is an indication of changes to come.
In the "post-Galapagos committee" we are working with some of Japan's brightest leaders on understanding the reasons and on how to drive this change.
Benchmarking Japan's electrical companies - Philips= 1/3 x Hitachi's sales and 2.2 x Hitachi's market cap:
GE= 1.6 x Hitachi's sales and 13.3 x Hitachi's market cap
More in our report on Japan's electrical industries.
Labels: galapagos, ge, hitachi, Japan, panasonic, Philips
Post-Galapagos Japan? - globalizing Japan's fantastic technologies...
"Why do Japanese companies make so beautiful mobile phones with fantastic functions, and have almost no global market share?" I asked this question back in 2003 to NTT-DoCoMo's CEO Dr. Tachikawa (see my article "Leadership questions of the week" in Wallstreet Journal of June 12, 2006, page 31), and offered several proposals to Dr. Tachikawa, of which he accepted one.
A related question is: "why can Samsung, LG and Apple beat Japan's initially far more advanced mobile phone makers, and why have Japan's phone makers taken no effective action to build global business in order to avoid extinction?"
Now six years after my initial presentation to DoCoMo's CEO, I have been invited as the only non-Japanese to work on Japan's "Post-Galapagos Committee". For most of this year our small group of industry CEOs, academics, government officials and other leaders have been working on understanding the reasons for Japan's "Galapagos effect" and how to overcome it.
Read about this work here in the New York Times, about my (Japanese language) presentation to the committee on the IT-Media website here (in Japanese), and download my presentation PowerPoints here (pdf-format, Japanese language).
The "Galapagos effect" has not been created by a single factor. Instead a collection of choices by the management teams of Japan's electrical conglomerates have prevented leverage of their domestic success stories into global success stories. These choices can be overcome. In our "Post-Galapagos committee" we have worked all-year on how to overcome these choices.
Unfortunately the "Galapagos effect" is only one symptom of the crisis of Japan's electrical giants: most have shown little or no growth in sales over the last 10 years, while at the same time margins tend to be small or negative. Over the same period, General Electric has increased sales by a factor of about three, while at the same time earning healthy margins.
Overcoming this crisis will create many opportunities. If at least some of the conclusions of our "Post Galapagos Committee" can be realized, then our committee's hard and totally voluntary work during most of this year and many late nights will not be wasted.
For an analysis of Japan's electrical industry sector see our J-Electric report.
A related question is: "why can Samsung, LG and Apple beat Japan's initially far more advanced mobile phone makers, and why have Japan's phone makers taken no effective action to build global business in order to avoid extinction?"
Now six years after my initial presentation to DoCoMo's CEO, I have been invited as the only non-Japanese to work on Japan's "Post-Galapagos Committee". For most of this year our small group of industry CEOs, academics, government officials and other leaders have been working on understanding the reasons for Japan's "Galapagos effect" and how to overcome it.
Read about this work here in the New York Times, about my (Japanese language) presentation to the committee on the IT-Media website here (in Japanese), and download my presentation PowerPoints here (pdf-format, Japanese language).
The "Galapagos effect" has not been created by a single factor. Instead a collection of choices by the management teams of Japan's electrical conglomerates have prevented leverage of their domestic success stories into global success stories. These choices can be overcome. In our "Post-Galapagos committee" we have worked all-year on how to overcome these choices.
Unfortunately the "Galapagos effect" is only one symptom of the crisis of Japan's electrical giants: most have shown little or no growth in sales over the last 10 years, while at the same time margins tend to be small or negative. Over the same period, General Electric has increased sales by a factor of about three, while at the same time earning healthy margins.
Overcoming this crisis will create many opportunities. If at least some of the conclusions of our "Post Galapagos Committee" can be realized, then our committee's hard and totally voluntary work during most of this year and many late nights will not be wasted.
For an analysis of Japan's electrical industry sector see our J-Electric report.
Labels: business in japan, fujitsu, galapagos, hitachi, nec, panasonic
Monday, July 13, 2009
Japan's games sector overtakes electrical sector
Japan's games sector is booming - and net annual income of Japan's top 9 game companies combined has now overtaken the combined net income of all Japan's top 19 electrical giants (including Hitachi, Panasonic, SONY, Fujitsu, Toshiba, SHARP... at the top, and ROHM, Omron... further down the ranking list).
Why does it make sense to compare electrical giants with game companies? In many areas, especially home electronics and personal portable devices these two sectors compete for exactly the same consumer spending budgets and mind share.
Pressure on Japan's electrical giants for much more fundamental restructuring is increasing. More details below and find our calculations and analysis explained in our reports: Report on Japan's electrical industry sector and our Report on Japan's game industries.
Figure compares the added total net income of Japan's top 18 electrical companies (Hitachi, Panasonic, SONY...) with the combined total net income of Japan's top 9 games companies (Nintendo, Bandai Namco..., not including SONY Computer Entertainment, because net income is not available).
The games sector - lead by Nintendo - shows stable net income all through the current crisis years. While pressure on the electrical giants for more fundamental restructuring is increasing.
Combined total net annual income of Japan's games sector. (SONY Computer Entertain- ment is not included, since net income is not available)
Detailed analysis in our report on Japan's games sector.
Why does it make sense to compare electrical giants with game companies? In many areas, especially home electronics and personal portable devices these two sectors compete for exactly the same consumer spending budgets and mind share.
Pressure on Japan's electrical giants for much more fundamental restructuring is increasing. More details below and find our calculations and analysis explained in our reports: Report on Japan's electrical industry sector and our Report on Japan's game industries.
Figure compares the added total net income of Japan's top 18 electrical companies (Hitachi, Panasonic, SONY...) with the combined total net income of Japan's top 9 games companies (Nintendo, Bandai Namco..., not including SONY Computer Entertainment, because net income is not available).
The games sector - lead by Nintendo - shows stable net income all through the current crisis years. While pressure on the electrical giants for more fundamental restructuring is increasing.
Combined total net annual income of Japan's games sector. (SONY Computer Entertain- ment is not included, since net income is not available)
Detailed analysis in our report on Japan's games sector.
Labels: fujitsu, hitachi, nintendo, omron, panasonic, rohm, sharp, sony, toshiba
Global benchmark for Japan's electro-giants
Lets look at global benchmarking of Japan's top electrical groups Panasonic and Hitachi (representative of Japan's top ten electrical giants) - in our previous blog we suggested that full recovery to 2008 (FY2007) levels may take until 2016 - about seven years in terms of income, and about 3-4 years in terms of revenues - UNLESS major restructuring happens. Will it be done?
We also take a look at specialist ROHM, which used to have outstanding margins because of the focus on highly specialized electrical and electronic components. ROHM's shareholder proposals recently made headlines.
Comparing Japan's top electrical groups Panasonic and Hitachi with GE and SIEMENS clearly shows the different philosophies in US, EU and Japan:
US based GE clearly aims for 15% net margin.
Germany based Siemens and Japanese giants Panasonic and Hitachi in the 1990s all had net margins close to zero. However, while Panasonic and Hitachi maintained their margins close to zero since the 1990s, Siemens clearly aims for US level margins - and achieved a slow and steady upward trend.
Very dramatic restructuring would be necessary to bring Japan's electric giants onto such a path. I think it is quite obvious exactly which restructuring is necessary. I also believe that if carried out it will actually create more employment in Japan than maintaining the existing structure of Japan's electrical industry sector. However, actually carrying such restructuring will require superhuman effort... will this happen?
More details about our global benchmark in our report on Japan's electrical sector.
Rohm is another interesting story - and a fascinating Kyoto-culture company (with headquarters not so far from superstar Nintendo). Rohm was founded in 1958 by today's CEO Sato Kenichiro to make resistors, and he later changed the name to R.ohm and then ROHM - today 80% of products are semiconductors. With increasing competition ROHM's initially very high margins melted away. To counter the trend towards commoditization, ROHM invests heavily in R&D with technology centers around the world. Last week ROHM made global headlines: US fund Brandes had proposed a US$ 157 million share buy back, which was rejected at the shareholder meeting. Looking at ROHM's margin over the years, its clear that action is required to bring margins again from today's zero to the previous 20% level. I can sympathize with shareholders who think that a Shuji Nakamura / Nichia-type R&D breakthrough would be more likely to deliver such a comeback rather than a share buy back.
Note that not all shareholder proposals by US or European funds are rejected summarily at Japanese company shareholder meetings... some well prepared proposals have actually been accepted successfully.
Starting from similar positions in the 1990s:
GE, Siemens, Hitachi and Panasonic all four had almost the same size in terms of annual sales back in the 1990s.
Today, GE is about twice the size as Hitachi or Siemens, and about 2.5 the size of Panasonic. It seems that successful globalization is a necessary factor to achieve GE-style growth - necessary, but not sufficient... (see: our analysis of dramatic differences in globalization of Japan's electric groups). The current crisis is a big opportunity for further growth by strong companies.
More: download our Report on Japan's electrical industries
We also take a look at specialist ROHM, which used to have outstanding margins because of the focus on highly specialized electrical and electronic components. ROHM's shareholder proposals recently made headlines.
Comparing Japan's top electrical groups Panasonic and Hitachi with GE and SIEMENS clearly shows the different philosophies in US, EU and Japan:
US based GE clearly aims for 15% net margin.
Germany based Siemens and Japanese giants Panasonic and Hitachi in the 1990s all had net margins close to zero. However, while Panasonic and Hitachi maintained their margins close to zero since the 1990s, Siemens clearly aims for US level margins - and achieved a slow and steady upward trend.
Very dramatic restructuring would be necessary to bring Japan's electric giants onto such a path. I think it is quite obvious exactly which restructuring is necessary. I also believe that if carried out it will actually create more employment in Japan than maintaining the existing structure of Japan's electrical industry sector. However, actually carrying such restructuring will require superhuman effort... will this happen?
More details about our global benchmark in our report on Japan's electrical sector.
Rohm is another interesting story - and a fascinating Kyoto-culture company (with headquarters not so far from superstar Nintendo). Rohm was founded in 1958 by today's CEO Sato Kenichiro to make resistors, and he later changed the name to R.ohm and then ROHM - today 80% of products are semiconductors. With increasing competition ROHM's initially very high margins melted away. To counter the trend towards commoditization, ROHM invests heavily in R&D with technology centers around the world. Last week ROHM made global headlines: US fund Brandes had proposed a US$ 157 million share buy back, which was rejected at the shareholder meeting. Looking at ROHM's margin over the years, its clear that action is required to bring margins again from today's zero to the previous 20% level. I can sympathize with shareholders who think that a Shuji Nakamura / Nichia-type R&D breakthrough would be more likely to deliver such a comeback rather than a share buy back.
Note that not all shareholder proposals by US or European funds are rejected summarily at Japanese company shareholder meetings... some well prepared proposals have actually been accepted successfully.
Starting from similar positions in the 1990s:
GE, Siemens, Hitachi and Panasonic all four had almost the same size in terms of annual sales back in the 1990s.
Today, GE is about twice the size as Hitachi or Siemens, and about 2.5 the size of Panasonic. It seems that successful globalization is a necessary factor to achieve GE-style growth - necessary, but not sufficient... (see: our analysis of dramatic differences in globalization of Japan's electric groups). The current crisis is a big opportunity for further growth by strong companies.
More: download our Report on Japan's electrical industries
Labels: germany, hitachi, panasonic, rohm, siemens
Japan's electrical companies & the crisis
Japan's top 20 electrical companies combined are about as large as The Netherlands economically, and have big impact on the world economy. Our analysis shows how dramatically Japan's electrical companies have been hit by the current crisis (except for Nintendo). We suggest that full recovery to 2008 (FY2007) levels may take until 2016 - about seven years in terms of income, and about 3-4 years in terms of revenues.
The crisis has thrown Japan's electrical companies back to 2002 in terms of combined annual net incomes. It has taken Japanese electricals 7 years to climb from the 2002 crisis to the 2008 (FY2007) boom. Since Japan's electrical companies have made relatively soft adjustments, but not a full fundamental industry restructuring yet, we think that it is likely that developments will proceed along a similar path as in the past: following such an analysis we think that it will take about 7 years from 2009 (ie. until 2016) for Japan's electrical companies to work their way back up to 2008 net income levels. (Find detailed financial data and analysis in our report on Japan's electrical industries)
Back to FY2003:
Combined annual sales for the financial year ending March 31, 2010, are at a similar level as in FY 2003, ie Japan's electrical industry has been taken back 6 years in terms of revenue growth. Again, since a dramatic and fundamental industry restructuring has not yet taken place, we believe that we can expect it will take about 4 years for Japan's electrical industry to grow again to 2008 (FY2007) size in terms of annual revenues.
The crisis spreads the field...
During the "good" years of FY1997 - FY2007 the differences between top and bottom performing electrical companies became steadily smaller: the field narrowed.
This figure shows that during the current crisis the spread between best and worst performing companies became more than twice as wide. The crisis clearly differentiates winners (Nintendo) from losers in terms of operating margins.
Read more details in our report about Japan's electrical industries
The crisis has thrown Japan's electrical companies back to 2002 in terms of combined annual net incomes. It has taken Japanese electricals 7 years to climb from the 2002 crisis to the 2008 (FY2007) boom. Since Japan's electrical companies have made relatively soft adjustments, but not a full fundamental industry restructuring yet, we think that it is likely that developments will proceed along a similar path as in the past: following such an analysis we think that it will take about 7 years from 2009 (ie. until 2016) for Japan's electrical companies to work their way back up to 2008 net income levels. (Find detailed financial data and analysis in our report on Japan's electrical industries)
Back to FY2003:
Combined annual sales for the financial year ending March 31, 2010, are at a similar level as in FY 2003, ie Japan's electrical industry has been taken back 6 years in terms of revenue growth. Again, since a dramatic and fundamental industry restructuring has not yet taken place, we believe that we can expect it will take about 4 years for Japan's electrical industry to grow again to 2008 (FY2007) size in terms of annual revenues.
The crisis spreads the field...
During the "good" years of FY1997 - FY2007 the differences between top and bottom performing electrical companies became steadily smaller: the field narrowed.
This figure shows that during the current crisis the spread between best and worst performing companies became more than twice as wide. The crisis clearly differentiates winners (Nintendo) from losers in terms of operating margins.
Read more details in our report about Japan's electrical industries
Labels: fujitsu, hitachi, nintendo, panasonic, sony, toshiba
Tuesday, February 10, 2009
Foggy Outlook for Global Tech Sector (CNBC TV interview)
More in our J-ELECTRIC report: http://www.eurotechnology.com/store/j_electric/
Labels: hitachi, panasonic, sharp, sony
Wednesday, February 04, 2009
Panasonic Warns on Loss (CNBC TV interview)
Sunday, November 16, 2008
Panasonic negotiates to acquire SANYO to form US$ 110 billion group
On November 7, 2008 Panasonic ("Ideas for Life") and Sanyo (slogan: "Think GAIA") announced that they entered negotiations which can potentially lead to an acquisition of Sanyo by Panasonic to form one of the largest electrical groups in the world. Sanyo's market capitalization is currently US$ 3.9 billion and Panasonic's is US$ 38 billion, combined sales are about US$ 110 Billion.
The Niigata Chuetsu earthquake of Oct. 23, 2004 caused an estimated total of US$ 30 Billion in damages, damaged Sanyo's semiconductor factory and contributed to large losses at Sanyo. As a consequence Daiwa Securities SMBC Co, Sumitomo Mitsui Banking Corporation and Goldman Sachs hold preferential shares in Sanyo with voting rights corresponding to 70% of outstanding shares. The current global financial crisis contributes to the potential acquisition, since Daiwa, Sumitomo-Mitsui and especially Goldman Sachs are motivated to sell their preferred shares when contractually possible, and it is also these three financial institutions which will have strong influence on whether this transaction will take place. Goldman Sachs is reported to have said that the price will decide.
Annual revenues of Japan's electrical groups: Panasonic and Sanyo combined (red curve in the figure below) will be one of the largest electrical groups globally. Note that Japan's electrical groups showed strong growth from FY 2003.
Annual operating margins of Japan's electrical groups: Panasonic's high operating margins helped Panasonic to reach a position of financial strength, enabling this acquisition. Expect more acquisitions by Japanese electrical companies.
Electrical differentiation: High margin (> 5%) vs low margin (< 4%) players.
The figure below shows that there is a clear differentiation of Japan's electrical groups: Mitsubishi Electric, Sharp and Panasonic have high margins - above 5%.
The other electrical groups (Fujitsu, Toshiba, Sanyo, Hitachi, Sony and NEC) have chosen a low-margin path (margins below 4%).
There is a clear gap (4% to 5%) separating these two fields. Panasonic's margin will suffer with a Sanyo acquisition - expect Panasonic management to bring Sanyo up to Panasonic margins.
Globalization of Japan's electrical groups: With 36.8% of sales outside Japan, Sanyo is more globalized than Panasonic. NEC, Fujitsu and Mitsubishi Electrical still have much way to go to globalize.
Read more in our report: "Japan's electrical companies"
The Niigata Chuetsu earthquake of Oct. 23, 2004 caused an estimated total of US$ 30 Billion in damages, damaged Sanyo's semiconductor factory and contributed to large losses at Sanyo. As a consequence Daiwa Securities SMBC Co, Sumitomo Mitsui Banking Corporation and Goldman Sachs hold preferential shares in Sanyo with voting rights corresponding to 70% of outstanding shares. The current global financial crisis contributes to the potential acquisition, since Daiwa, Sumitomo-Mitsui and especially Goldman Sachs are motivated to sell their preferred shares when contractually possible, and it is also these three financial institutions which will have strong influence on whether this transaction will take place. Goldman Sachs is reported to have said that the price will decide.
Annual revenues of Japan's electrical groups: Panasonic and Sanyo combined (red curve in the figure below) will be one of the largest electrical groups globally. Note that Japan's electrical groups showed strong growth from FY 2003.
Annual operating margins of Japan's electrical groups: Panasonic's high operating margins helped Panasonic to reach a position of financial strength, enabling this acquisition. Expect more acquisitions by Japanese electrical companies.
Electrical differentiation: High margin (> 5%) vs low margin (< 4%) players.
The figure below shows that there is a clear differentiation of Japan's electrical groups: Mitsubishi Electric, Sharp and Panasonic have high margins - above 5%.
The other electrical groups (Fujitsu, Toshiba, Sanyo, Hitachi, Sony and NEC) have chosen a low-margin path (margins below 4%).
There is a clear gap (4% to 5%) separating these two fields. Panasonic's margin will suffer with a Sanyo acquisition - expect Panasonic management to bring Sanyo up to Panasonic margins.
Globalization of Japan's electrical groups: With 36.8% of sales outside Japan, Sanyo is more globalized than Panasonic. NEC, Fujitsu and Mitsubishi Electrical still have much way to go to globalize.
Read more in our report: "Japan's electrical companies"
Labels: business in japan, electrical companies, panasonic, sanyo
Wednesday, October 22, 2008
Tech Sector Outlook (CNBC TV interview)
More in our J-ELECTRIC report: http://www.eurotechnology.com/store/j_electric/
Labels: apple, docomo, KDDI, ntt, panasonic, sony
Friday, October 03, 2008
Paradigm change of the global mobile phone business and opportunities for Japanese mobile phone makers
Presentation at the CEATEC Conference, talk NT-13, Meeting Room 302, International Conference Hall, Makuhari Messe, Friday October 3, 2008, 11:00-12:00.
The emergence of iPhone, Android, open-sourcing of Symbian, and the growth of mobile data services are changing the paradigm of the global mobile phone business opening new opportunities for Japanese mobile phone makers. Japan's mobile phone handset makers have missed most opportunities during the first wave of mobile phone opportunities. The developing paradigm change opens new opportunities for Japanese makers. The talk will explain the paradigm shifts and trends of the global mobile phone handset market, and resulting opportunities for Japanese mobile phone makers, and will indicate how these opportunities can actually be realized.
Download the presentation as a pdf-file here (in Japanese language)
The emergence of iPhone, Android, open-sourcing of Symbian, and the growth of mobile data services are changing the paradigm of the global mobile phone business opening new opportunities for Japanese mobile phone makers. Japan's mobile phone handset makers have missed most opportunities during the first wave of mobile phone opportunities. The developing paradigm change opens new opportunities for Japanese makers. The talk will explain the paradigm shifts and trends of the global mobile phone handset market, and resulting opportunities for Japanese mobile phone makers, and will indicate how these opportunities can actually be realized.
Download the presentation as a pdf-file here (in Japanese language)
Labels: android, Japan, maker, mobile phone, panasonic, sharp
