It has taken Japan's electronics giants just five years to wipe out the profits of nearly two decades. If Panasonic, Sharp and Sony have their sums right (and that is a big if), then combined, the ¥3.7-trillion ($460-billion) they will have lost by the end of this year is equivalent to their profits from the previous 18 years, according to Capital IQ data. Their plight has led Sharp to admit there is "material doubt" over its survival, and Panasonic to make further writedowns and restructurings. Sony alone is clinging to profit hopes this year. Being the best of a bunch this bad does not say much.
Promises of action have duly been made (again). But the problem is not the will to act, but the ability to get it right. This is hardly their first attempt. Panasonic has spent ¥635-billion in the past 10 years on restructuring and Sony ¥590-billion.
Such regular one-offs should really be considered an ordinary expense. Doing that however would have knocked up to a third off operating margins already thinner than a flat-screen TV. The spend could have be forgiven if value had been created. But Panasonic has lost 1.33-trillion from asset and goodwill writedowns, and investment losses in the last 10 years – the result of poor bets, in other words. And Sony's equivalent ¥64-billion gain includes losing ¥155-billion on asset sales. It is hard to believe more restructuring will produce a different outcome.
Yes, the yen is painfully strong and there was Japan's devastating earthquake and tsunami last year. But the problems began back when the yen was far weaker. Sales at Samsung, the rival that proves the right bets can be made, have grown an average of 15 per cent in the past 10 years. Japan's giants have managed an average 2 per cent.
If a further reality check were needed, then there is the combined writeoff of ¥475-billion in tax assets by Sharp and Panasonic. Nothing marks the triumph of reality over managerial optimism better than conceding you won't get money back from the taxman. Investors should have long ago conceded they won't get their money back on these three, either.