News

One might assume that the mutually dependent businesses of electronics manufacturing and retailing would track each other in perfect unison. That's often true, but they can sometimes get wildly out of sync with each other. It's one of the great economic mysteries.

In fact, that's what happened in 2002. US retailers, having suffered through a lackluster winter holiday season, generally reported flat results for the year, having escaped disaster on the surging popularity of digital television products and home theater equipment. There were even a couple of catastrophic results—Circuit City's personnel cutbacks, and the impending end of New York's Wiz stores. (See related story.)

Manufacturers, however, reported mixed news for the third quarter, ended December 31, and for the calendar year, despite being hampered by a strike by West Coast dockworkers last fall. In early February, Philips Electronics stated that its consumer electronics sales in North America grew 5% during 2002, with a total of $10.5 billion, up from the $10 billion posted in the previous 12 months. Philips' global sales of CE products declined 13% in the same period, and the company's total sales for the year were off 2%. Hot products for the company were DVD players and DVD+RW drives, which doubled in growth, and flatscreen TVs.

Philips reported global CE income at $247 million in 2002, compared with a loss of $697 million in the preceding 12 months, but the conglomerate's overall loss for the year was its highest ever: $3.4 billion, compared with a net loss of $2.7 billion in 2001. Philips is a massive industrial conglomerate; its consumer electronics division is one of many, including semiconductors, and medical and scientific instruments. Total sales worldwide for all divisions reached $34.2 billion in 2002, a 2% drop from the $34.7 billion reported the previous year. The fiscal year for most companies in the electronics industry runs from April 1 to March 31.

French consumer electronics maker Thomson saw a drop in US sales in the second half of the year, but enjoyed an increase in profits thanks to surging interest in high end video products, particularly the company's Scenium line. "Significant growth" in sales of digital TVs in the fourth quarter helped offset a downturn in the company's audio, video, and communications sectors, which declined 10.6% for the calendar year and 14.6% in the second half, compared to 2001. Thomson got out of the camcorder market at the end of 2001, a move that partly accounts for a $165.3 million drop in sales volume for 2002. Thomson’s consumer products division reported total sales of $5.8 billion for 2002, a decline of 17.8% from the $7 billion reported in 2001.

Consumer products accounted for 43.4% of Thomson's business last year. Operating income in the CE division was $41 million in 2002, a sharp drop from the previous year's $148.1 million, and made worse by a 22.3% decline in sales during the fourth quarter. Thomson sold $1.7 billion worth of goods in the three-month period, down from $2.2 billion reported for the same period in 2001. The conglomerate's total global sales, however, were off only 2% at $10.9 billion.

Japanese firms reported generally better results than their European counterparts. Buoyed by strong demand for plasma televisions, Pioneer Electronics posted an 8.4% boost in sales for the third quarter, with a total of $639.4 million. The company's home electronics division tripled its operating income in the third quarter, reporting $28.5 million compared with $9.5 million in the same three months in 2001. Pioneer's sales outside Japan in the third quarter were $435.9 million, a rise of 4.5%. For the nine months ended December 31, the company's home electronics division reported revenue of $1.5 billion, a 7.9% increase over the previous year's $1.4 billion. Pioneer managed to cut its operating loss in the division from $84 million in the first nine months of 2001 to $3.4 million for the same period in 2002. The company's third quarter revenue was up 8.5% at $1.6 billion, up from $1.5 billion reported for the period in 2001. Net income of $67.2 million was more than twice its 2001 level of $26.8 million.

Sharp Electronics is a company intensely pulling itself up by the bootstraps. Major product development programs and marketing efforts resulted in a 26.8% third-quarter sales growth for the company's Audio-Visual and Communication Equipment product group, with a total of $1.9 billion. The division saw its operating income surge by 63.4%, hitting $84.7 million in the three months ended December 31. Sharp's LCD televisions are among its hottest product lines, totaling $482.4 million for the nine months ending December 31. Sharp predicts that LCD TV sales will hit $682 million in sales for the full fiscal year. Year-to-date operating income for the A/V and communications group grew 33.9%, to $171.5 million, on $4.9 billion in revenue, an increase of 13.7%. Sharp's net sales for the third quarter were up 12.7% to $4.4 billion, while net income leaped an astounding 209% to $116.2 million. For the nine months, Sharp's total sales were up 12.7% to $12.5 billion, with operating income up 30.9% at $649.5 million. Net income for the nine month period was up 77.1% at $306.6 million.

Toshiba is another company riding high, with third-quarter sales up 19% thanks to strong demand for its DVD players, digital media gear, and portable PCs. Toshiba's digital media division, including consumer electronics, had $3.7 billion in revenue during the fiscal third quarter, with operating income reported at $59 million vs $34 million for the same period the previous year. Toshiba projects $14 billion in sales for the year, up from $12.4 billion the previous year. For the year, projected operating income for the digital media segment is $177 million, a vast improvement over the $125.6 million operating loss reported in fiscal 2001. Toshiba's consolidated net sales for the third quarter grew 8%, for a total of $11 billion, compared to $10.1 billion in the same three months the previous year.

Hitachi isn't soaring like Sharp, but still managed to report a 1% growth in third-quarter sales of digital media and consumer products, with a total of $2.6 billion. Plasma televisions, optical storage products, and rechargeable batteries were all profitable for Hitachi, whose digital media division reported operating income of $23 million for the third quarter, 336% more than the $5.2 million reported in the previous year, attributed to demand for recordable DVD discs. Hitachi's North America sales dropped slightly in the nine months ended December 31, down 2% to $5.6 billion from $5.7 billion in the same period in 2001.

The faltering US economy and ongoing threat of war have made American consumers wary. A poll of retail executives released in early February shows that they have "lowered their expectations" for the near future. The monthly Retail Executive Survey, conducted by the National Retail Federation (NRF) and The Bank of Tokyo-Mitsubishi (BTM), indicates that retailers expect the next six months to be as tough as the previous six have been. "Understandably, there seems to be a great deal of uncertainty in the January outlook among retail executives," Michael Niemira, senior retail analyst for BTM, told This Week in Consumer Electronics (TWICE). "The threats of war and weakness in the economy have created a sense of caution in all industries, and retail is no exception." Those surveyed said they would keep "lean" inventories until the economy picks up.