Tokyo: Hitachi Ltd said on Wednesday it will outsource all television assembly as early as this year as it expects demand to shrink in an increasingly price-competitive market.
Hitachi’s plan comes a day after rival Sony Corp said it will restructure its loss-making TV business and consider teaming up with other companies.
Japan is teeming with TV makers such as Panasonic Corp, Toshiba Corp and Sharp Corp, all of whom have warned of weak TV sales as they struggle to compete with lower-cost Asian rivals such as Samsung Electronics and LG Electronics.
“TVs are an unrewarding business with low margins and little value added,” said MF Global analyst David Rubenstein. “Even Samsung and LG, with larger scales, are struggling with both their panels and TVs. It’s a good move to get out.”
Japanese firms have clung to their TV operations because TVs, along with white goods and digital appliances, help promote an electronics maker’s brand. But this is becoming a luxury fewer can afford as global competition and a stronger yen erase margins.
Pressure to absorb the yen’s strength will push forward overdue consolidation and restructuring in the electronics sector, analysts said.
“The yen’s rise is forcing companies to make a choice: consolidate and outsource or go bust,” said Akio Makabe, a professor of economics at Shinshu University. “Electronics firms especially are being forced to play to their strengths and focus on components that nobody else can replicate, while outsourcing even more assembly abroad.”
Hitachi, which started making TVs more than 50 years ago, said it will keep its Gifu plant as its workers there in central Japan to make core TV components, but that outsourcing assembly would help cut costs of its Wooo and Ultravision TVs.
It expects the domestic TV market to shrivel to 7 million units in 2012 after it swelled ahead of the switch this year to digital terrestrial broadcasting. The market was about 25.7 million units size in 2010.
Hitachi, which has already closed its overseas TV production sites, had just 0.5% of the global flat-panel TV market by revenues in the first quarter of this year, according to DisplaySearch.
The company, which analysts say outsources parts of its TV production to Taiwan, expects to sell 1.6 million units in the year to March compared with 1.9 million units the previous year.
The outsourcing news helped Hitachi shares recover much of their morning losses to close down 0.9% at ¥463, outperforming a 2.1% fall in the benchmark Nikkei 225.
Hitachi said last week its first quarter profit fell a smaller-than-expected 41% on supply disruptions stemming from the 11 March earthquake. It kept its annual forecast slightly below expectations amid fears of power outages at home and frailty in consumer and corporate demand in the United States and Europe.