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NEC to Exit Japanese Smartphone Market

July 31, 2013 by

The retreat in the face of competition from an American and a South Korean company highlighted the country’s shift from electronics industry leader to laggard over the course of the last decade.

“We were late to enter the smartphone market, and we were unable to develop attractive products,” Isamu Kawashima, the chief financial officer of NEC, said at a news conference here. “That’s what it comes down to.”

Like other Japanese phone makers, NEC clung to old-fashioned flip phones — great for making phone calls, taking pictures or playing simple games, but not for much else — as rivals elsewhere were developing smartphones that put the entire Internet and more in users’ pockets. The first NEC smartphone did not appear until 2011, four years after Apple’s iPhone.

The strategic failure cost NEC hundreds of millions of dollars in losses as its share of the Japanese cellphone market slipped into the single digits. And corporate Japan suffered another blow to its once vaunted reputation for innovation.

“NEC was like the face of the Japanese phone industry,” said Nobuyuki Hayashi, a technology consultant and writer. “Losing them will be very upsetting for those who take pride in Japanese manufacturing.”

NEC’s surrender is the latest in a series of consolidations. In 2010, NEC absorbed the remnants of the mobile phone divisions of two other Japanese stalwarts, Casio and Hitachi, with NEC holding a controlling stake. In 2008, Kyocera acquired the phone-making arm of Sanyo. In 2010, Fujitsu and Toshiba combined their handset businesses; Fujitsu bought out its partner last year. Mitsubishi, another big electronics company, got out of the phone business entirely.

Analysts say NEC and other Japanese cellphone makers were tied too closely to Japanese network operators, developing what has come to be known in that country as a “Galápagos” effect; devices were cut off from the evolution of the phone business elsewhere. As a result, the makers failed to grasp the significance of the rise of the smartphone.

As Japanese consumers embraced the smartphone in a big way, the companies had nothing to offer. Although flip phones from NEC and other Japanese makers are still in wide use in the country, smartphones now make up a majority of new sales. Japanese brands struggle to compete with imported smartphones, especially the iPhone.

“As the market for mobile phone handsets, including the rapid spread of smartphones, has dramatically changed, economies of scale have become increasingly important for the maintenance and strengthening of competitiveness,” NEC said in a statement. “However, NEC’s mobile phone handset shipments are following a downward trend, and it is difficult to foresee improved performance in the future.”

By last year, Apple had become the market leader in Japan, where the iPhone had won 25.5 percent of overall cellphone sales, according to the MM Research Institute. Even Samsung, which has been slower to establish a foothold in Japan than elsewhere, surpassed NEC last year, with a 7.2 percent market share.

In smartphones, Apple is even more dominant, with 40 percent of the Japanese market in the first quarter, according to another research firm, IDC.

For NEC, the final straw may have come when NTT-Docomo turned to a Samsung smartphone, the Galaxy S4, in an effort to stem the loss of subscribers to two rival network operators, SoftBank and KDDI, which have been marketing the iPhone aggressively.

Docomo does not offer the iPhone; instead, it has been featuring the Galaxy S4 and a Sony smartphone, the Xperia A, in a summer sales promotion. It is the first time that Docomo has featured a Samsung phone so prominently. Given the longstanding ties between Docomo, a former state-owned monopoly, and domestic phone makers, the decision was widely seen in Japan as a slap in the face to the Japanese industry.

There could be further bad news in store for the Japanese smartphone makers. Docomo has been talking with Apple about adding the iPhone to its range.

“Nothing has been decided and we’re always considering which models to launch,” Docomo said in a statement.

“There will be further consolidation in the industry,” said Jean-Philippe Biragnet, a partner at the Bain Company consulting firm in Tokyo. “There is not space for more than two or three of these players. The question is, Who?”

Among the domestic brands, the leaders last year, according to MM, were Fujitsu, with a 14.4 percent share of the overall mobile phone market; Sharp, with 14 percent; and Sony, with 9.8 percent.

Panasonic and Kyocera are much weaker, though they were slightly ahead of NEC, whose share of the business had fallen to about 5 percent last year from nearly 28 percent in 2001, according to MM.

Among the remaining contenders, only Sony has a significant presence outside Japan. The other Japanese phone makers have been outflanked at the high end of the smartphone business by Apple, Samsung and others, and at the low end by a growing number of Chinese manufacturers.

NEC was in talks with one of the Chinese companies, Lenovo, about a partnership aimed at saving the smartphone business, but the negotiations broke down several weeks ago, making the company’s announcement Wednesday inevitable, analysts said.

For fans of retro-styled Japanese flip phones, which have come to be known here as “gara-kei,” short for “Galápagos phone,” there was at least one saving grace in NEC’s announcement. The company said that even though it was quitting the smartphone business, it would continue “developing and producing conventional mobile handsets.”

Joshua Hunt contributed reporting.

Article source: http://www.nytimes.com/2013/08/01/business/global/nec-to-exit-japanese-smartphone-market.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Corporate Japan Rocked by Scandal at Olympus

November 10, 2011 by Leave a Comment

But Olympus categorically denied the rumor and went on to post record profits. All was well in the house of Olympus, the newly installed president, Tsuyoshi Kikukawa, assured investors.

That story came back to haunt the company this week after a shocking revelation, prompted by accusations by Michael Woodford, its ousted British chief executive turned whistle-blower: The company admitted it had hidden losses from the early 1990s using a series of inflated acquisition payments of over $1 billion, much of it made through obscure overseas funds, in a bid to clear its balance sheet.

Mr. Kikukawa has resigned in disgrace as chairman, along with two of his lieutenants, and could face criminal charges over the cover-up if securities laws were violated, analysts say. The company has lost three-quarters of its value, faces the possibility of delisting from the Tokyo Stock Exchange and may have a large financial hole to climb out of after all the losses are accounted for.

The Tokyo Metropolitan Police has begun an investigation into the cover-up, people familiar with the matter said Thursday. The investigation is led by the section of the force that handles financial crimes, and it will focus on charges of aggravated breach of trust, the people said, speaking anonymously because they were not authorized to speak with the media.

A Tokyo police unit that handles organized crime is also involved with the investigation, the people said. Media reports have suggested that Olympus worked with people with links to the Japanese mafia to help set up the transactions that masked losses.

The scandal is rocking corporate Japan not least because of the company’s succession of firings, denials and admissions; it is also certain to expose weaknesses in Japan’s financial regulatory system and corporate governance, analysts said.

Analysts also warned that more Japanese companies could be hiding losses they incurred in the country’s asset-and-stock-price bubble economy of the late 1980s. Companies routinely poured billions of yen into speculative trades — moves called “zaitech,” or “financial techniques” — that turned sour when the bubble burst in 1990.

“This has been two lost decades for corporate accounting. It’s easy to imagine companies hiding losses for years, waiting for financial markets to recover,” said Hideaki Kubori, a lawyer in Tokyo who specializes in corporate governance and compliance. “But the recovery never came.”

Exporters like Olympus were especially eager to prop up their earnings to counter a surge in the value of the yen after 1985, which crimped overseas profit.

“In that era, companies found they could make more money investing in land or stocks than you could in your main business,” said Hiroshi Osano, a professor at the Institute of Economic Research at Kyoto University.

But after the bubble burst, Japanese companies entered a painful decade of writing off losses. “Those that dealt with the problem straightaway struggled through the 1990s and pulled through,” Mr. Osano said.

The losses Olympus incurred, however, appear to have been so big that the company decided some finessing was in order. It was an enthusiastic investor in derivatives and other risky investments under Toshiro Shimoyama, president from 1984 to 1993, who told the Nikkei industrial daily newspaper in 1986: “When the main business is struggling, we need to earn through zaitech — though doing too much is no good.”

Though it is still unclear how, and how much, Olympus lost from its bubble-era investment spree, there are hints of excessive risk-taking. Until 1990, returns on investments propped up its profit; by 1991, it had written down 2.1 billion yen in securities valuation losses, the first of many write-downs.

In September 1998, three months after the rumors of the colossal trading losses, Olympus said it had written off part of a 45 billion yen investment in emerging market bonds. In its midterm earnings statement in October 1999, the company said it had booked a loss of almost 17 billion yen from trades including interest rate and currency swaps. The company also recorded a loss on a 2.9 billion yen investment in what turned out to be a Ponzi scheme run by the New Jersey firm Princeton Economics International.

Those write-downs, however, were the exception, not the norm, and Olympus now admits that it hid investment losses; a third-party panel of legal experts is still assessing how much.

“It is possible that if Olympus had booked all its losses, it would have become insolvent,” said Tsutomu Yamada, a market analyst at Kabu.com Securities in Tokyo. “So Olympus management decided to handle the losses off the books. They did it for the sake of the company.”

Martin Fackler and Taro Umemura contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=4d6bb6de5be53233ae26b7a53a176ff4

Filed Under: Business News Tagged With: , ,

Another Scandal Unsettles Corporate Japan

October 28, 2011 by Leave a Comment

TOKYO — It is the second wild boardroom drama to shake up corporate Japan in days: the country’s leading tissue maker, Daio Paper, said on Friday that it would file a criminal complaint against its former chairman, accusing him of illicitly borrowing $140 million in company funds and channeling some of that money to a Las Vegas casino company.

The controversy provides yet another lens into the seemingly free-wheeling behavior — and disregard for corporate governance — still seen among top management at some of Japan’s leading companies.

Olympus, the medical imaging and digital camera maker, has lost half its stock market value this month since its ousted chief executive released internal documents that he said showed the company made over $1 billion in improper payments over a series of acquisitions.

But the scandal at Daio Paper, which makes the best-selling Elleair brand of tissues in Japan and other paper products, is unique because the company has made public the ex-chairman’s alleged shenanigans. In a report filed with the Tokyo Stock Exchange on Friday, the company also acknowledged gross lapses in its corporate governance.

According to the report, the former chairman, Mototaka Ikawa, routinely ordered subsidiaries to deposit money into his personal bank account and to an account held by a Japanese subsidiary of the casino operator Las Vegas Sands. Mr. Ikawa has since repaid almost half of the money, the report said, but has claimed he used the rest on currency trading and dealing on the stock market.

Mr. Ikawa has denounced the report, calling it biased, but has not responded publicly to specific charges, according to the public broadcaster NHK. The report says that Mr. Ikawa has admitted to borrowing some of the money, but has suggested he intended to return it. But he failed to turn up at most of the meetings requested by the authors of the report, it said.

Daio Paper’s share price has dropped about 15 percent since reports about the loans started surfacing in the local media. Mr. Ikawa stepped down on Sept. 16.

“I apologize from the bottom of my heart for the discovery of 10.7 billion yen in loans to our former chairman, which has brought great inconvenience to our shareholders,” the president of Daio Paper, Masayoshi Sako, told a packed news conference.

Mr. Sato said the company had also fired Mr. Ikawa’s brother, a board member, Takahiro Ikawa, and their father, Takao Ikawa, who is an adviser to Daio Paper and a former chairman. His father, Isekichi Ikawa, founded the company in 1943.

The dominance still wielded by the founding family was excessive, Mr. Sato said, though he added that the company would still ask Takao Ikawa for advice from time to time. The Ikawa family is a major shareholder in the company.

According to the report filed with the stock exchange, which the company said was prepared by an outside panel of legal experts, Mr. Ikawa ordered seven subsidiaries to lend him a total of 10.68 billion yen between May 2010 and September 2011. He has since repaid 4.75 billion yen.

“In many cases, the former chairman would unilaterally demand: ‘You must deposit X million yen into my account by tomorrow,’ ” the report said. Executives at the subsidiaries knew Mr. Ikawa wanted the funds for personal use but did not question him, and the loans were made without collateral, it said.

Some of the subsidiaries were forced to take on more debt to cover for the loans to Mr. Ikawa, the report said. In the year to March, the company booked a net loss of 8 billion yen on sales of about 410 billion yen.

According to the report, Mr. Ikawa demanded that the money be paid into a personal account held under his name or to the casino company, sometimes through another Daio Paper subsidiary. Daio Paper has no business dealings with Las Vegas Sands, the report said.

In a harsh self-criticism, the report said that company executives, board members and even its auditors turned a blind eye to the loans.

“At the Daio Paper Group, speaking out against the Ikawa family has not been condoned,” the report said. “When the former chairman asked for a transfer of funds, his wishes were obeyed without question.”

Daio Paper said that it would ask Mr. Ikawa to repay the remaining 5.93 billion yen and investigate how he used the money.

The company also announced a 50 percent pay cut for the president, Mr. Sako, and other censures for its board members, and said it would set up a special committee to study ways to bolster its corporate governance.

Article source: http://www.nytimes.com/2011/10/29/business/global/new-scandal-presses-corporate-japan.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,