With Failure Looming, Panasonic Pulls Smartphones in Europe

Economic weakness in Europe has caused a ripple effect in Asia, with {complink 4185|Panasonic Corp.} being the latest company to feel the pain of the prolonged crisis.

Only a few months after announcing that it would sell its Eluga smartphones in Europe, the Japanese electronics giant this week reversed its decision, saying it will stop selling phones here by March 2013, according to various press reports, including this one on Reuters.

This slice of news is part of a major restructuring program at Panasonic. The company also plans to scale back operations in Japan, reorganize its entire mobile operations, freeze investments in solar panel production at its Malaysia facility, consolidate domestic production of small lithium batteries used in PCs, and reduce the number of business units from 88 to 56 by next spring, the reports said.

The smartphone pullback may not come as too much of a surprise to longtime industry watchers. Panasonic dropped out of the European phone market in 2005 but relaunched here in April, putting high hopes on its Eluga handset. The ongoing economic crisis, though, cut those expectations short and, generally speaking, has dragged down its balance sheet.

On Wednesday, the company announced that consolidated group sales for the six months ended Sept. 30 dropped 9 percent, and, according to Computer World, the business reforms amounted to an “$8.8 billion loss, five times its loss a year earlier.”

Although a weak European buying climate and fierce competition from Apple and Samsung put pressure on Panasonic's phone sales, the company's troubles reflect more widespread issues hitting consumer electronic companies up and down the supply chain, especially in Asia.

As The Wall Street Journal points out, more widespread production of new devices that can be freely interchanged with TVs and other living room appliances (which have long underpinned Japan's dominance in certain kinds of consumer electronics products), combined with a strong yen and aging production plants, have put Japanese companies' competitiveness in jeopardy. And there has been limited R&D research and innovation to create next-generation products that are a hit with consumers.

Whether it's one or all of these factors that have contributed to Panasonic's current situation, is really neither here nor there. What's done is done, and the pain of those business decisions is being felt now. The question today moves to what will become of this mighty bellwether?

Restructuring is probably a necessary first step, as is slicing back products and business units that no longer create sustainable results. But, what comes after those budget cuts and halted plans?

The broader issue remains whether Panasonic and other wannabes in the consumer electronics market can be viable players in the sector. All too often these days we keep hearing about companies having to pull back because the market just isn't there right now or the business conditions aren't favorable. Yet others, like Apple and Samsung, seem to be doing just fine despite occasional hiccups. What exactly is wrong with the strategies at other contenders like Panasonic and what must they do to become competitive?

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