Pioneer Corp feels the crunch, 10,000 jobs to go

Pioneer Corporation, the Japanese consumer electronics manufacturer which is a big player across home, professional and in-car products, is set to cut 10,000 jobs as its forecast loss for the last financial year has had to be revised upward to a record 130 billion yen (£968 million). It will also close its television operations - including a plasma panel-making factory in the UK - as the downturn in consumer demand for electronics continues amid the current global recession.

In all, Pioneer plans to cut around 30 percent of its 30 manufacturing plants worldwide as part of a serious restructuring. The company will withdraw from TV manufacturing by March 2010 and cut 16 percent of its full-time workforce. The pull-out from television manufacturing will end 25 years in that market. Pioneer moved to developing plasma screen models in 1991 but plasma sales dropped once LCD TV prices became competitive - plasma sets provide a picture quality that some prefer, but LCD offers a brighter picture, at that tends to grab the consumer at the point of sale.

The Tokyo-based company have said they expect overall sales to have fallen 28 percent. Pioneer has suffered a combined loss of over 100 billion yen on its home electronics business, including plasma TV, since the year ended March 2004 and these figures put more pressure on recently appointed company President, Susumu Kotani, to somehow steer the Pioneer ship back on coarse by relying on sales of their in-car products - a tall order given the plumetting vehicle sales demand.

The current economic climate has created an unprecedented risk for some of the world's largest corporations. We could see the biggest shake-up in the consumer electronics market since the Japanese-led revolution in consumer electronics going back to the late 60's and early 70's. According to Mitsushige Akino of Tokyo-based Ichiyoshi Investment Management, "The share market will take the loss forecast as a message that Pioneer cannot survive by itself. The consumer-electronics industry has now entered into the stage where a company on the brink of a cliff falls down."

While Pioneer's home-electronics division is hardest hit, likely to post an operating loss of around 52 billion yen, there is little good news for the company even on its very successful in-car division. Pioneer was a leader in the sector during the late 70's and 80's and still figures as one of the major brands in automotive audio, video and satellite navigation. It had previously forecast a 10 billion yen profit for the year but is now looking at a loss likely to be in the region of 12.5 billion yen.

"The car-related equipment market is disastrous now," said Kazuharu Miura of analysts Daiwa Institute of Research Ltd. "Car-navigation sales are bad because of slowing car sales, and demand for car audio systems are low due to weak consumer spending."

Mr Miura is merely formally stating what many in the UK car electronics aftermarket know well enough already, and there is little doubt that Pioneer is not the only company in difficulty. Several of the big manufacturers have taken serious steps to cut their losses, some have combined, and it's doubtful that there is a single consumer electronics manufacturer in the world that is feeling confident of being able to ride out the current economic storm without restructuring its operations to a lesser or greater extent. If companies such as Pioneer and Sony are feeling the crunch, imagine how rough the waters must be for lesser known brands and manufacturers.

And with many companies now manufacturing in China, or sourcing from Chinese factories, the short to medium term prospects for many Chinese companies look equally dire. The best should survive, while those least equipped will hit the wall and, in the longer term, that will be a good thing. There are a lot of sub-standard producers in China. But prices are likely to rise, in line with a rise in overall quality and reliability, and the already raised expectations and demands of the Chinese workers. Surely something good will come from this painful period.

We may not be sure what damage will be done and who will survive - this recession is likely to weed out many of the less robust companies, right through from manufacturing to retail - but we can be sure about one thing. Sooner or later demand will pick up again, consumer spending will strengthen and there will once again be opportunties for companies who run their financial affairs prudently and manage to hold on to their core staff, particularly in technical development. Likewise, those retailers whose businesses have been built on a foundation of good knowledge, excellent service and prudent financial management will prosper, perhaps like never before. Pruning the tree is often necessary to stimulate new growth and ensure a healthy plant. [KOB. Based on an article by Hiroshi Suzuki, Bloomberg]