Sharp-Pioneer deal signals electronics shakeout

Business Materials 23 September 2007 05:42 (UTC +04:00)

( Reuters ) - This week's capital alliance between Sharp Corp. and Pioneer Corp. will likely kick-start further realignment in Japan's overcrowded electronics sector, which needs to pool resources to survive.

Japan's electronics conglomerates have sprawling business portfolios, spreading their resources across everything from microchips to flat-panel TVs, mobile phones, rice cookers, nuclear power plants and prefabricated homes.

The business model worked well during Japan's rapid economic expansion of the 1960s and 1970s, but now looks outdated as global leaders like Nokia and Intel gain their edge by focusing on a few products and leveraging scale.

Even Sharp, which has risen to become one of the world's top makers of flat TVs and is considered relatively well positioned in the sector, is about half as efficient as Nokia, with an operating profit margin of just 6 percent.

"More than 10 firms are still making TVs in Japan ... Little progress has been made in the field of selecting and focusing on core businesses," said Hiroshi Motoki, chief investment officer at AIG Global Investment.

"It is a serious problem that the competitiveness of this sector is slipping due to lack of focus. Consolidation is just about the only way for Japanese electronics makers to survive."