Japanese firms face reform problems

22 November 2012

TOKYO: Struggling companies in Japan's electronics and technology sectors are adopting a diverse range of streamlining strategies, but face major obstacles to success.

Sharp, which issued a profit warning this month, is hoping to sell half of its share in an advanced liquid-crystal-display panel factory to Terry Guo, chairman of Foxconn, the Taiwanese manufacturing giant.

However, Daniel Wetstein, the head of technology banking, Asia Pacific, at Morgan Stanley, argued the tough trading climate in Japan may cause deals to falter or leave players like Sharp at a disadvantage.

"Japanese companies generally want to sell businesses that include their domestic manufacturing operations, which potential buyers are typically less interested in, given the comparatively high cost," he he told the Wall Street Journal.

Micron Technology, a US firm working for clients like the electronics pioneer Apple, is seeking to purchase Elpida Memory, the Japanese chip maker which filed for bankruptcy protection this year.

The primary motivation behind this move is thought to be the technology that Elpida has developed for use in memory chips for smartphones, an area where demand is likely to remain relatively robust.

In a further reflection of this trend, KKR, the private equity group, has also been linked to investing $1.3bn in Renesas Electronics, another chip manufacturer.

A government representative reported in September that the Innovation Network Corporation of Japan, an official investment body, was in talks with possible partners like Toyota, the carmaker, and Panasonic, the electronics firm, about a rival offer.

"There's a much greater willingness for Japanese firms to go through restructuring than ever before,” said Jan Metzger, head of technology sector investment banking coverage, Asia Pacific, for Credit Suisse.

"Advanced technology and intellectual property owned by Japanese companies are hugely attractive to potential buyers in China, Taiwan, Korea or the US."

One of the other core issues facing many ailing Japanese brand owners is a loss in the traditionally strong backing of local banks, which are demanding more restructuring before agreeing loans.

Data sourced from Wall Street Journal; additional content by Warc staff