Can Sharp and Panasonic Last Another Year?
Shares of Sharp (OTC: SHCAY) and Panasonic (NYSE: PC) traded lower on Thursday, as poor earnings have analysts questioning their future within the tech industry. Although many have blamed the companies' failures on the strong yen, their problems run much deeper.
For more than 10 years, Sharp has employed a flawed business plan that included overpriced televisions, lame TV ads and a dying perception of quality. While the company repeatedly told consumers that its screens were (for lack of a better word) sharp, the company failed to persevere above Sony (NYSE: SNE) and Samsung. Initially, competing sets were the same price but looked much better. In more recent years, Sony, Samsung, Vizio and LG have reduced their prices while simultaneously increasing the quality of their televisions. Sharp has been unable to do the same.
Panasonic manufactures beautiful displays, but its business model is also severely flawed. While other manufacturers abandoned plasma TV production the moment LCDs became a viable alternative, Panasonic continued to produce plasma displays. That effort led to some interesting concepts, including a 150-inch display, but it has not helped the company's bottom line. (Sharp is famous for building a 108-inch TV, which was once the largest in the world. Perhaps bigger is not better.)
Comparatively, Samsung and Vizio continue to grow their TV businesses. You cannot walk into a bar in Metro Detroit without seeing Vizio TVs hung from the ceiling. They are everywhere. This is partially due to Vizio's pricing strategy; the company has strived to undercut its competitors at every turn.
By charging as little as possible, Vizio displays have proven to be attractive to both consumers and small business owners.
Sony and Samsung are set to implement a different strategy. Last May The Wall Street Journal reported that the two firms had implemented a new pricing policy that will prevent retailers from discounting their TVs. This could allow their competitors to undercut their prices more easily through retail reductions.
Year-to-date, Panasonic is down more than 45 percent while Sharp is down more than 70 percent. Sharp dropped more than 12 percent today after the company revealed that it expects to report a full-year, record-breaking loss of $5.6 billion.
Panasonic hopes to save its TV business by teaming up with Sony to produce low-cost OLED displays. This initiative could be cut short, however, now that Panasonic has decided to scale back production of new LCD TVs.
Sharp has yet to reveal any plans for how it might recover. The company told Bloomberg that it has "material doubt" that it can survive.
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