Financial Roundup

By several common measures, the American economy appears to be emerging from its first recession in a decade. On Friday, April 26, the US Commerce Department reported economic growth of 5.8% (annual rate) for the first quarter. Gross domestic product (GDP), generally considered the broadest indicator of the economy's health, was the strongest since the final quarter of 1999. The 5.8% rate is especially encouraging in view of the 1.7% rate during the fourth quarter of 2001. The US Labor Department also reported a decline in first-time applications for unemployment benefits during the last week of April.

Spurred by low interest rates, home purchases increased 15.7% in January and February before dropping off in March. The first two months of 2002 were the strongest ever for home sales, according to an April 25 report from the National Association of Realtors. On the same day, the National Association of Home Builders (NAHB) issued a prediction for growth throughout 2003 and 2004.

Increasing home sales bode well for the consumer electronics industry because new homes are often upgraded with new entertainment systems. Upscale homes are now frequently built with media rooms or home-theater systems included as part of the package. NAHB economists predict a 5.0% rise in GDP for the first quarter of this year, followed by increases of 3.6% in the second quarter, 3.4% in the third, and 3.5% in the final quarter.

Electronics retailers claimed mixed results for the first quarter of 2002. Canton, MA-based Tweeter Home Entertainment Group, Inc. reported a 6.7% drop in same-store sales for the second fiscal quarter, excluding results from the company's Big Screen City, Audio Video Systems, Sound Advice, Showcase Home Entertainment, and Hillcrest chains. Tweeter is predicting a mild downturn in business this year, with projections of 3–5% less revenue than last year. Even so, the company sees a brighter future, and is proceeding with plans to open 10 new stores this year, with eight more slated for the first quarter of fiscal 2003.

Those clever accountants: RadioShack recently reported a 24% increase in net income from the previous year, despite a 9.2% decline in revenue, $1.03 billion from $1.14 billion, and a 7% slowdown in sales at stores in operation at least one year. The Shack claimed a net income of $57.6 million, up from $46.5 million a year earlier. The Fort Worth, TX–based electronics chain predicts sales growth of 4–5% in the second half of the year. RadioShack is revamping its stores and inventory, with a new emphasis on wireless services, handheld devices, digital cameras, and MP3 players. Car audio has been dropped from its lineup.

On the broadcasting side, Viacom Inc., owner of CBS, MTV, Infinity Radio, and Paramount Pictures, reported a massive loss of $1.11 billion for the first quarter, compared with a loss of $7.3 million for the same period a year earlier. Nonetheless, CEO Sumner Redstone told analysts that his company is "seeing earlier- an upturn in the ad market" and expects advertising revenue to rise in the second quarter. Viacom said its earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped 5% to $1.095 billion.

Many manufacturers continue to have a hard time of it. On April 26th, Panasonic's parent company Matsushita Electric Industrial Co. reported its worst-ever losses for its fiscal year ended March 31, with $3.35 billion (¥431.0 billion) in red ink due to a 10.5% drop in sales. Last year, Matsushita had a net profit of ¥41.50 billion on sales of ¥7.682 trillion. Matsushita recently announced a massive reorganization of its five group businesses into 14 "core operations," including audiovisual and communications equipment, mobile communications, electric appliances, and electronic parts, by April 2003. The company is also predicting a profitable 2002, with high hopes for what it is calling its "Victory 21" products: plasma display panels, digital television sets, DVD recorders, and mobile telephones.

Sony Corporation also suffered an unhappy fiscal year, with an 8.6% decline in net income. The downturn was partially attributed to restructuring costs. Even so, Sony claimed that its strong video-game business propelled annual group sales to an all-time high of $60.07 billion (¥7.79 trillion). Sony's popular PlayStation 2 and associated software accounted for an astounding 62% of the company's ¥134.6 billion operating profit for the fiscal year ended March 31. Like Matsushita, Sony is reorganizing its electronics group, which last year produced 70% of the company's overall sales. The company has also been streamlining its workforce, having cut 13,700 employees from the payroll in the past year.

Pioneer Corporation reported mixed results: an increase of 3.4% in group sales for its fiscal year, but a decline in profits due to higher advertising expenses. Sales reached an all-time high of ¥668.90 billion, but operating profit dropped 37% to ¥21.28 billion. The company's group net profit dropped 56% to ¥8.05 billion, but sales of audio and video products rose 2.4% to ¥195.72 billion. Pioneer's strongest products are home-theater plasma display, DVD products, and automotive electronics.

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