A leading manufacturer of electronic and electrical products, Panasonic Corp. (PC) announced to move a part of its plasma display panel (PDP) production facility based in Amagasaki, Japan to Panasonic Plasma Display (Shanghai) Co. Ltd. (PPDS) in Shanghai, China.
The PDP plant in Amagasaki City, near Osaka is Panasonic’s third domestic PDP plant. This transfer will boost Panasonic’s market position by producing PDP in the rapidly growing Chinese market and meet the rising demand for flat-panel TVs in China.
PPDS was established in January 2001 as a joint venture between Panasonic, previously named Matsushita Electric Industrial Co. Ltd. and the Shanghai City. The plant started operations in December 2001.
Along with meeting the mounting demand for flat-panel TVs in China, PPDS will also aid Panasonic in improving the group-wide cost competitiveness, thereby enabling the company to attain its target for the global flat-panel TV market.
Further, Panasonic plans to transfer the PPDS plant that produces plasma display panels and assembles TV sets to Pudong Jinqiao Development Zone for additional production requirement and maximizing production efficiencies. Panasonic is already producing 25,000 42-inch plasma display panels per month at its plant in Pudong New Area.
The new production facility at the Pudong Zone plans to commence production with a monthly capacity of approximately 120,000 42-inch panels by April 2012. Panasonic plans to augment production efficiency by utilizing the integrated production system.
The flat-panel TV market is expected to continue its growth path and will likely exceed 240 million sets in 2012. China’s flat-panel TV market is likely to surpass 50 million units by 2012, and become the world’s largest producing country.
Moreover, the demand for plasma TVs with a large-screen and high picture quality is also expected to grow in China, driven by digital TV broadcasting and increased consumer interest in Full HD 3D plasma TVs.
Historically, Panasonic has secured the top domestic market share of approximately 70% in plasma TVs, with consumer products under both ‘Panasonic’ and ‘National’ brands showing a steady rise. Moreover, the company’s sales of flat-panel TVs have been above expectation, remaining well ahead of the other competitors in large-sized flat-panel TVs.
Management Plans
Panasonic is currently implementing a new three year mid-term management plan, which is expected to be completed by March 2013. Under the plan, Panasonic plans to escalate sales to 2.15 trillion yen or an average annual growth rate of 10% in its Network digital AV business.
The company plans to make its flat-panel TV business profitable by ensuring its competitive edge in terms of cost structure, product and marketing. Thus, Panasonic will improve its cost structure by shifting its finished product and module assembly to Asian countries, halving the number of components and actively adopting OEM and ODM services.
Panasonic plans to produce 30 million units of flat-panel TVs in fiscal 2013, compared with 15.8 million units produced in fiscal 2010. Of the 30 million units, the company intends to produce more than 11 million units in the emerging markets.
The company will shift its emphasis to 3D TVs and LED-backlight LCD TVs and carry out intensive advertising investment in major countries as well as increase the number of products for high-volume segments. The company will enhance the competitiveness of its flat-panel TVs and increase the ratio of 3D TVs to 70% of the total flat-panel TVs in fiscal 2013.
In the LED business, Panasonic plans to increase sales by 4.5 times compared with fiscal 2010. To attain this goal, the company will expand globally, increase market share in Japan and develop overseas sales channels.
Recommendation
Panasonic’s first quarter of fiscal 2011 profit came in at 43.68 billion yen, or 21.1 yen per share, from a loss of 52.98 billion yen, or 25.58 yen per share in the year-ago quarter. Revenues for the quarter were 2.16 trillion yen, up from 1.60 trillion yen in the year-ago period.
The company also raised its earnings outlook for the fiscal year ending March 2011 to 85 billion yen from the previous expectation of 50 billion yen. Revenue estimates were also upped to 8.9 trillion yen from 8.8 trillion yen.
We believe Panasonic’s business conditions are improving, led by growth in the emerging countries. However, Panasonic apprehends that the market conditions will remain uncertain due to a weakness in the U.S. and Europe.
Panasonic could confront intense rivalry for dominance in the PDP, LCD and rear-projection TV markets, as well as severe price competition.
Despite tough competition, Panasonic is well positioned for growth over the long term. We currently have a neutral rating on the stock over the long term with a Zacks Rank of #3, indicating a short-term Hold rating.
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