Matsushita: Back to the Glory Days

Its Panasonic brand is hot again, and profits are juiced up

It's July, and Japanese gadget fanatics, flush with summer bonuses, are shopping for the newest and coolest electronic gear: Palm-size camcorders, DVD recorders, and wall-hanging TVs. It wasn't long ago that sleek offerings from Sony Corp. and Toshiba Corp. attracted most of the attention and sales -- but not anymore. Matsushita's Panasonic-brand products, once relegated to the back shelf, are outselling the competition. "Panasonic is hard to beat," says Hideki Yamada, who oversees television sales at Bic Camera, a leading electronics emporium in Tokyo. "It's bombarding the market with stylish, high-quality products at the most competitive prices."

Around the world, the story is the same. Matsushita Electric Industrial Co., as the Osaka outfit is known, captured 50% of both the U.S. and the global DVD recorder market in 2002, according to market researcher NPDTechworld. It accounts for 30% of the global sales of large-screen plasma-display TVs. And it's becoming a global player in cellular handsets, thanks to the popularity of its camera phones. "Handsets will really help Matsushita differentiate itself," says electronics analyst Richard Chu of ING Securities (Japan) Ltd. He predicts the company could capture 25% to 30% of the global market in digital camera-equipped phones.

All of that is remarkable, considering that just a year ago Matsushita appeared to be sinking. The consumer-electronics maker chalked up $3.6 billion in red ink for the fiscal year ended in March, 2002 -- its worst showing since the company's founding in 1918. It posted a net loss of $162 million for the year ended last March, on sales of $61.7 billion. But a close look at the numbers tells a story of recovery. Most of last year's loss was due to restructuring charges. On an operating basis, every business division delivered healthy earnings, pushing Matsushita's operating profits for the year to $1.1 billion, compared with a $1.7 billion operating loss for the previous year. "We can be proud of what we've done," says Matsushita Executive Vice-President Yukio Shohtoku. "But we're not about to become complacent."

That's not a worry as long as Kunio Nakamura is heading up the show. Since taking over as president three years ago, after successfully reorganizing U.S. operations in the mid-1990s, Nakamura has reduced the Japanese workforce by about 20%, to 120,000 employees, while streamlining or shuttering 30 factories around the world. In the past year, he has reduced inventory by 20% and more than doubled cash flow, to $5.7 billion.

But Nakamura's main focus has been on revamping Matsushita's product line. He has cut back sharply on duplication of products by Matsushita's many divisions and instructed engineers and designers to focus on strategic products, led by high-margin DVD recorders, flat-panel TVs, and cell phones. The result has been attractive new products such as the Diga DVD recorder, which allows a viewer to watch the beginning of a recorded program even while the DVD is recording the end.

Matsushita is betting big on cell phones, too. A pioneer in Internet-ready handsets in Japan, it is making its mark in Europe and China. Last year, the company sold 14 million handsets, 6 million of them overseas, giving it 3.3% of the global market. In Europe, the company's phones accounted for an estimated 30% of those sold to subscribers of Vodafone live!, a new service offered by the British mobile phone giant.

Matsushita is also counting on its edge in key components to generate profits. "Our advantage is that we make both the products and the semiconductors and other devices that go into them," says Shohtoku, who spearheads global strategy. For example, Matsushita first develops specialty system chips for its own products, then, as they become commoditized, makes them available to assemblers in China and other countries. That's the kind of smart strategy that will help Matsushita, so recently down and out, to regain its former glory.

By Irene M. Kunii in Tokyo, with Andy Reinhardt in Paris

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