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Japan Earnings Gloom Fades as Panasonic Paces Tokyo Rally

Panasonic Corp. (6752) had its best week in more than two years of Tokyo trading, following its forecast for a record $10 billion loss, showing some investors are betting Japan’s biggest exporters have hit bottom.

Sony Corp. (6758) had its biggest weekly gain in more than three months, after more than doubling its net loss forecast to 220 billion yen ($2.8 billion) for this fiscal year, the most since listing in 1958. Toyota Motor Corp. (7203), which expects less than half as much profit this year as last, surged 5.6 percent, the biggest gain in more than two months.

The rally signals investors expect the nation’s exporters of cars, televisions, phones and chips to bounce back after a year that combined the worst earthquake in Japan’s history, a months-long flood in Thailand that disrupted output and a currency that’s surged to a postwar high. The catastrophes and yen gains are being offset as investors bet a broader rise in global trade will allow Japan’s exporters to revive profit, said Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd.

“What they need is a recovery in global trade and that’s precisely what they are getting at the moment,” Smith said Feb. 10. “The market has already seen that, it’s seen the inflection point and it’s behind us.”

Japan’s benchmark Topix index has climbed 7.3 percent this year as of today’s close in Tokyo, following a 19 percent slump in 2011, partly on optimism the losses at consumer electronics makers would accelerate job cuts and an exit from money-losing businesses.

Beyond Gloom

The rally also shows analysts are looking beyond the gloomy economic and earnings forecasts for the current fiscal year, said Mark Matthews, head of research for Asia at Bank Julius Baer & Co. in Singapore. The gains by shares in Asia this year have further to go, he said.

“Earnings forecasts tend to lag the real economy quite a bit,” Matthews said in an e-mail. “I would not be surprised, given the better-than-expected data in Europe and the U.S. to see upward revisions.”

Still, Japan’s money-losing electronics companies are shedding jobs and outsourcing production.

NEC Corp. (6701), a Japanese maker of mobile phones and telecommunications gear, announced 10,000 job cuts last month after forecasting its third annual loss.

Production Cuts

Sharp Corp. (6753), formerly Japan’s biggest maker of liquid- crystal display televisions, now plans to cut LCD production to about 50 percent of capacity at its biggest factory to reduce inventory after forecasting a record 290 billion yen loss for the year ending March 31.

Panasonic dropped 1.5 percent to 643 yen at the 3 p.m. close of trading in Tokyo, after a 9 percent gain last week, the biggest weekly advance since Jan. 15, 2010.

Sony declined 1.6 percent today, trimming last week’s 7 percent surge, while NEC was unchanged. Sharp fell 1.1 percent and Toyota gained 0.2 percent. The benchmark Nikkei 225 Stock Average rose 0.6 percent.

Japanese Economy Minister Motohisa Furukawa cited the Thai floods and a “weak overseas recovery” for the annualized 2.3 percent fourth-quarter contraction in the economy the government reported today. Growth will “continue recovering slowly” and is on an upward swing, Furukawa said. “We expect a steady increase in exports on a gradual recovery in the global economy.”

Television Losses

Panasonic, Sony, Hitachi Ltd. (6501) and Toshiba Corp. (6502) have also struggled to revive earnings from TV production as South Korean and Taiwanese rivals raised output and pushed prices down.

“Their TV business segment is the core problem,” Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., said by phone Feb. 10. “They need to change business structures more to compete with Korean companies.”

Samsung Electronics Co. (005930), a South Korean maker of televisions, microchips and mobile phones, has eroded Japanese rivals’ market share as a relatively weak Korean won has allowed it to win in cost competitiveness.

Suwon, South Korea-based Samsung will probably have net income of 18 trillion won ($16 billion) this year, an 80 percent jump from 2011, according to the average of 40 analysts’ estimates compiled by Bloomberg.

Sony, which hasn’t made money on its television business in seven years, has exited its display panel venture with Samsung.

Leaner Promises

Kazuo Hirai, who takes over as chief executive officer of Sony starting April 1, said he will close less-competitive businesses. Sony, worth more than $100 billion in 2000, is now valued at about $20 billion.

Panasonic President Fumio Ohtsubo on Feb. 3 reiterated a pledge to cut jobs and shift output overseas as the company focuses on building its business making solar panels and rechargeable batteries.

Reform of TV and chip operations, cost cuts, buying more parts from Asian producers and a recovery from flood damages may boost profit at the company by about 250 billion yen in the year starting April 1, Osaka-based Panasonic said Feb. 3.

Carlos Ghosn, chief executive officer of Nissan (7201) Motor Co., said in October Japan faces a “hollowing out” of its industrial base should it fail to counter the yen’s rise.

Yokohama-based Nissan, Japan’s second-biggest automaker, shifted output of the March compact car to Thailand from Oppama, Japan, almost two years ago to offset the effect of the strengthening yen and to cut costs by basing production near suppliers. The company began construction last year of a plant in Brazil and has said it plans a third auto-assembly factory in Mexico.

The moves to shift output to countries with weaker currencies and rising global demand for smartphones and tablet computers will help revive earnings, said Fujiwara of Shinkin Asset. “Japanese automakers and companies that make components for smartphones and tablets will recover this year.”

To contact the editor responsible for this story: Dave McCombs at dmccombs@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net;

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