New business models can return short-term results, but getting back
to the core competency of manufacturing excellence is needed for
long-term success.
Japan’s Ministry of Economy, Trade and Industry (METI) released
production data from the Japanese PCB industry for the first half of
2007.
It is difficult to summarize in a few words the trends within the
entire PCB industry because nothing eventful stood out looking at the
industry as a whole; however, new trends within certain segments are
apparent. During the first quarter of the year, the whole industry
mirrored its performance from the second half of 2006. Depending on the
product category, several PCB products bucked this trend and posted
growth during the second quarter of the year.
Total revenue from PCB production for the first half was 494.9
billion yen (about 4.3 billion U.S. dollars), an 8.6% growth compared
to the same time frame of the previous year. Total production volume
dropped to 12.17 million square meters, a 1.4% decline from the same
period of the previous year. This translates into making more money by
producing less.
During the first half of 2006, Japanese PCB industry managers moved
to higher price products to elevate their margins, and that business
plan continued for the second half of 2006. The trend continued during
the early part of 2007, and manufacturers enjoyed double-digit revenue
gains, while volume fell by more than 5%. Japanese manufacturers
changed direction during the last few months. They are placing an
emphasis on volume and are willing to shrink their margins in an effort
to hold market share.
Each product category has different marketing strategies associated
with it. Flexible circuits could be very typical. Manufacturers changed
over to double-sided and multilayer from single-sided circuits because
of their higher selling prices. Total volume for flexible circuits
declined by 2.7%, but revenue increased 3.0% during the first half of
2007 compared to the first half of 2006. Volume and revenue for
single-sided flexible circuits dropped 4.6% and 7.6%, respectively,
compared to the same period of the previous year, and average selling
prices continue to decrease. On the other hand, revenue from
double-sided and multilayer flexible circuits continued to increase
10.1% despite a declining production volume of -1.3%. Average selling
prices for double-sided and multilayer circuits remained high during
the first half of the year.
Results from the rigid board circuits segment are mixed. Six to
eight layer boards were up 22.6%, and build-up boards up 15.8% posted
double-digit growth rates compared to the same periods in 2006.
However, four, 10 and higher layer count boards suffered negative
growth for both revenue and volume compared to the same period in the
previous year. Revenue and growth from double-sided rigid boards
remained flat. Nowadays, single-sided rigid boards are considered an
insignificant product in the industry; however they still reported a
4.6% revenue growth while volume declined 8.8%.
Module circuits listed mixed performances; revenue and volume from
rigid-type module circuits increased by 40.2% and 32.3% respectively. A
pessimistic concern is that both revenue and volume declined
significantly during the last month of the first half. Other module
circuits showed virtually no revenue growth (-0.1%), but volume spiked
by 11.2%. The majority of circuits are earmarked for the driver module
in flat panel displays. It is understandable that the whole market has
grown rapidly, but prices are continuously declining.
After analyzing data from the first half of the year, I would like
to predict possible market trends for the second half of 2007; however,
these are not easy to forecast because of the new industry trends that
appeared during the second quarter of the year. If the industry
maintains the status quo from the second quarter, the whole year should
enjoy significant revenue growth, even though production volume will be
flat or decline. Unfortunately, the outlook for the consumer
electronics market in Japan is very unclear; I cannot be optimistic
right now.
Realignment Within Japan’s Electronics Industry
The number of large electronic companies in Japan reached more than
a dozen during the heyday of the 1980s. The global electronics market
continuously expanded during this decade, justifying the number of
companies in the industry. Most of the Japanese electronics
manufacturers took advantage of the exporting business because the
domestic market was saturated with competition.
Over last 20 years, Korean and Taiwanese electronics manufacturers
have nibbled their way into the global consumer electronics market, and
Chinese manufacturers gained a foothold during the last decade. Now,
the pie is not big enough to share with Japanese manufacturers if they
want to stay in the low-cost consumer market. There are too many
Japanese electronic manufacturers, and they must change business
direction to survive increased competition within the market.
Unfortunately, they are too big to change directions quickly, and
recent changes from the companies are not very smart.
Several announcements and strategy changes from major manufacturers
transpired over the last few months. Matsushita Electric Industry sold
its entire stake in JVC, one of the world’s leading manufacturers of
audiovisual equipment, because of poor performance. JVC will
collaborate with Kenwood, another major Japanese audio equipment
manufacturer, to survive in the industry.
Sanyo has posted significant losses over the last few years, and
most of its management recently resigned. Sanyo decided to cut off
several major business segments that include cellular phones in the
near future. Sony, the global consumer electronics giant, has decided
to shut its semiconductor manufacturing and sell to Toshiba.
Sharp, the largest LCD device manufacturer in Japan, announced its
intentions to buy a 15% stake in Pioneer, another major AV equipment
supplier and the second largest PDP device manufacturer in Japan. Both
companies stated they will not merge but will maintain a tight business
relationship with each other. Japanese media outlets are speculating on
the next company to broadcast a major development: Hitachi or Fujitsu?
Not only is a redeployment of resources affecting manufacturers but
also retailers within Japan’s consumer electronics market. Big Camera
and Best Denki, the sixth and seventh largest retailers within the
consumer electric and electronic market announced their intentions to
merge last week in an effort to survive in a very competitive consumer
electronics market. They will be the second largest retailer after
Yamada Denki, the retail giant in the Japanese consumer market. The
companies explained they could be more competitive with Yamada by
joining forces.
Most of the recent restructuring plans from Japanese electronics
companies are targeted at cutting off the non-profitable divisions, and
growing through mergers and acquisitions. It seems that Japanese
electronics companies are taking a page out of the same book as the
Americans.
Some say that one plus one will be more than two through the
collaborations of different companies. Historically, the track record
in the industry for companies becoming successful after a merger or
acquisition is not very good. For these companies, one plus one is less
than two. It is very common that total revenue from the post-merged
companies is larger, but incomes may not necessarily increase.
Sometimes, one plus one is less than one.
New business models from some of the electronics companies will
provide some short-term positive results. However, long term, it could
be a struggle if they do not improve upon their bread and butter
functions such as manufacturing. Without improving on what they do
best, the future may be bleak.
Dominique Numakura is president of DKN Research; This email address is being protected from spambots. You need JavaScript enabled to view it..
