Soft demand, costs force Panasonic to stop making 3 appliances

By BusinessWorld Reporter RUBY ANNE M. RUBIO and JENNEE GRACE U. RUBRICO, Senior Reporter Panasonic Manufacturing Philippines Corp., a leading maker and distributor of electronic and electrical appliances, said it would stop making home appliances like oven toasters, electric irons and electric stoves by end-May. In a disclosure, corporate secretary Mamerto Z. Mondragon said the decision is due to the continuing decline in the market share of the home appliances and unabated increase in the prices of raw materials. Trading was already closed when Panasonic made the disclosure. Shares closed unchanged at P6.50. Panasonic posted a decline in its net income for six months ending September due to higher costs and weak local demand for home appliances. In a regulatory filing, the firm said it had posted a six-month net income after tax of P74.3 million, down 53.8% from a year ago. Net sales went up 2.7% to P3.8 billion from P3.7 billion due to increase in export sales by 57%. However, domestic sales fell 6% due to lower demand for home appliances. "Also, the market continues to be sluggish as a result of increasing cost of commodities and consumer goods as well as the declining value of the peso," the company earlier said in a regulatory filing. The company is a maker, importer and distributor of electronic, electrical, mechanical, electro-mechanical appliances, and various types of machinery, parts and components, batteries, and related products. It competes mainly in the local electronics and electrical appliance industry currently dominated by major Japanese brands followed by Korean, American, Philippine, Taiwanese, Chinese, and other brands. Panasonic Manufacturing Philippines Corp. has plants in Taytay, Rizal and Sta. Rosa. Panasonic Manufacturing said the market for electronic and electrical appliance industry in the Philippines has a high potential for growth considering the low saturation ratios observed for major product groups such as air-conditioners, washing machine, and refrigerator. The National Statistics Office reported the country’s merchandise exports rose 3.9% to $41.22 billion in 2005. This is lower than the government’s full-year target of 8%. In December, merchandise exports rose 16.8% to $3.83 billion as shipments of electronics recovered. Accounting for 67.6% of total shipments, electronics exports expanded by 15.7% to $2.59 billion. In its 2004 annual report, Panasonic Manufacturing said, "With a large customer base of about 16 million households and except for color TV, less than 50% saturation ratios, the appliance industry should have a high potential for growth. But the industry did not fully realize this huge potential in 2004. Color TV posted only 5% growth, total video growing by only 9% and audio even dropping by 8%. The white lines or the so-called electrical appliances did better with an 11% and split air-conditioner by 27%. Refrigerators and washing machines posted a more modest growth of 9%. One explanation is that a huge percentage of these 16 million households are below the poverty line. As their income remain almost constant and the price of basic needs increase, our products share of pocket become smaller." On the supply side, China continues to be one of the major sources of imported appliances being sold locally. Among the appliances that are mainly being imported from China are air-conditioners, electric fans, washing machines, and microwave ovens. Shortly after it announced the shutdown of its mobile phone manufacturing plant in Santa Rosa, Laguna, the Panasonic group has indicated its intent to reenter the Philippine mobile phone market. In a talk with reporters after the press launch for its new line of air-conditioners last Friday, Panasonic Manufacturing Philippines Corp. President Rene T. Almeda said the Panasonic group, which is based in Japan, will come back to the Philippine mobile phone market in a year and a half. Japanese phone maker Panasonic Mobile Communications Co. Ltd. announced last November that it will close its Philippine subsidiary by March this year. Panasonic Mobile Communications Corporation of the Philippines, a manufacturing firm based in Laguna, will be closing due to tough competition from other mobile phone companies. The company, which exported most of its products to Asia-Pacific countries, will be laying off 700 employees with the shutdown of its plant, officials said. "We still see some potential in the mobile phone business. It is still profitable, except that the current platform is already dominated by competition," Mr. Almeda said. He said the group is already preparing for the advent of the third-generation or 3G system. The system, touted as the new revenue source of phone companies, will allow users to do internet browsing, multimedia streaming and large file downloading at broadband speeds, aside from standard voice calls and text messaging. But Mr. Almeda could not say just yet whether Panasonic will reopen its plant, or if it will just be importing the units that it will be selling in the local market. "It’s too early to tell."