An "Era of Winners and Losers" in Japanese Consumer Electronics (CAJ, MC, SANYY, SHCAY, SNE)

by: Steven Towns

Yesterday Martin Fackler of The New York Times wrote about Sharp's gamble on LCDs and the changing Japanese business environment. Within the article he wrote:

But nowhere are the changes in corporate behavior more apparent than in Japan's electronics industry, where companies compete in what the Japanese business press has dubbed a new "era of winners and losers." The former include Canon (CAJ), the camera maker; Matsushita Electric (MC), maker of Panasonic; and Sharp (SHCAY.PK), all thriving. Meanwhile, other well-known companies like Sanyo Electric (SANYY), Pioneer and Sony (SNE) have floundered.

Below I have charted the stock performance of these 5 companies over the past year (remember Pioneer voluntarily delisted itself earlier this year, formerly ticker: PIO). The results reflect the Japanese business press dubbed winners and losers.

Sharp however, barely beat out Sony and has in recent trading underperformed its larger rival due largely to profit taking. Sony actually had about a 40% rebound following its breakout earnings in the last quarter. The stock has come down some on the now official word that the PlayStation 3 launch has been postponed from this spring until November.

    • Although Sanyo Electric has been the dog of the Nikkei for the past two years, it now has some big names supporting it and its restructuring is really starting to take form. For one, Goldman Sachs (GS) has a billion dollar investment and has done quite well investing in Japanese turnaround plays.

    • Many Japanese analysts continue to have a bullish view of Canon Inc. It has about 18% upside according to analyst ratings and target share price estimates.

    • Sony Corp shares are the most unpredictable (volatile) because of the 6-months or so of waiting until the PS3 is brought to market. The good news for Sony is the success it is having with its Bravia LCD TV sales.

    • Matsushita Electric Industrial is often regarded as the best organizationally positioned among Japanese CE firms. It is said to be mostly finished with its restructuring and is investing aggressively in plasma TVs. It also has an interesting segment in household appliances that feature state-of-the-art functions and low-energy requirements. Matsushita is a leader in fuel-cell powered appliances. This plays off a Japanese fondness of high-tech and energy efficiency as private consumption is increasing as the overall economy improves.

    • Lastly, Sharp Corp's "secret weapon" so to speak is its solar energy segment. In terms of output, Sharp Solar is the world's largest manufacturer of solar cells and systems. Demand continues to outpace supply in this increasingly profitable industry.

SHCAY vs. SNE, SANYY, MC, CAJ 1-yr chart: