Breakingviews - Panasonic pushes limits of rewiring circuitry

Panasonic's prototype delivery robot, HOSPI, designed to serve bottled beverages and provide bus information, is pictured at a hotel near Narita International Airport in Narita, Japan January 17, 2017. REUTERS/Toru Hanai

HONG KONG (Reuters Breakingviews) - Panasonic’s complicated corporate circuitry cries out for simplification. The Japanese conglomerate is yet again reorganising a $26 billion electronics empire that spans fax machines to electric-vehicle batteries. It should streamline operations and improve profitability. With luck, it will also make it easier for new boss Yuki Kusumi to lead a broader breakup.

Investors may be feeling a sense of déjà vu. Panasonic is in perpetual restructuring mode. Nearly two decades ago, it tried to tackle “new layers, greater complexity, and a scattering of technologies”. A subsequent 2012 reorganisation under Chief Executive Kazuhiro Tsuga was more aggressive, slashing costs, shedding unprofitable divisions such as plasma TVs and reducing the number of business units.

The latest plan takes things even further. The new holding company arrangement features a revised organisational chart with as many as eight separate groups. Although it is designed to speed up decision making, it will still leave Kusumi grappling with too much sprawl.

Panasonic’s archaic setup has contributed to a stubbornly low annual net profit margin that hasn’t exceeded 4% since before the millennium. Fellow Japanese conglomerates have managed to do better. Sony, for one, pockets 7 cents for every $1 of sales after embarking on its own redesign that offloaded drags such as personal computers and sought recurring profit from subscriptions and services.

There is scope for Panasonic to pursue something similar. Its new structure should make it easier to carve out constituent parts. Some segments are already under scrutiny, including LCD panels, solar and semiconductors.

Kusumi could be bolder, though. The company’s household appliances division is rich in history and has been the single biggest revenue contributor in recent years, but it also experienced a one-third drop in operating profit last year.

An even stronger focus on the automotive business, which Kusumi has been running, would be wiser. Partnerships with Tesla and Toyota can be expanded and lead to a higher valuation. Just look at the evidence. Battery-maker CATL, which supplies the same two carmakers, is valued at more than 80 times expected earnings over the next year. Panasonic trades at around 17 times. That should be ample incentive for Kusumi to keep rewiring the company.


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