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123webguru News Desk
Japan mobile makers face challenges at home, abroad
By Kiyoshi Takenaka
TOKYO (Reuters) - Not only have Japanese mobile phone makers' global ambitions been dashed, but they may soon face challenges at home as foreign firms compete with cutting-edge camera phones, mobile Web access and 3G handsets.
Japanese makers had long dreamed of headlines about corporate successes from China to Europe and beyond. But nowadays stories are detailing their departures from key foreign markets.
Toshiba Corp. (6502.T: Quote, Profile, Research) , for instance, pulled out of China, and Mitsubishi Electric Corp. (6503.T: Quote, Profile, Research) led a retreat from Europe after failing to compete successfully with Nokia (NOK1V.HE: Quote, Profile, Research) and other global giants.
"They may be thinking that as long as they have the domestic market, all is well. But companies like Nokia and Motorola Inc. (MOT.N: Quote, Profile, Research) will soon be coming in," said IDC analyst Michito Kimura.
"If they lost the domestic market, that would be the fall of their last bastion."
So far, mobile phone makers in Japan have been able to keep the domestic market, which accounts for about 7 percent of global demand, virtually to themselves. That's mainly because Japanese second-generation mobile phone networks were based on a unique, home-grown technology.
But users are gradually shifting to a global W-CDMA standard for high-speed third-generation (3G) services, helping to crack open the market for overseas makers.
NTT DoCoMo Inc. (9437.T: Quote, Profile, Research) , Japan's dominant wireless carrier, said last week it aimed to launch a 3G phone made by Nokia as early as the second half of this business year starting in October.
DoCoMo also plans to introduce a Motorola phone for business users this summer, exerting pricing pressure on Japanese handset makers and potentially denting their already shaky profitability.
Total mobile phone shipments by a dozen handset makers in Japan -- which include NEC Corp. (6701.T: Quote, Profile, Research) , Matsushita Electric Industrial Co. Ltd. (6752.T: Quote, Profile, Research) , Kyocera Corp. (6971.T: Quote, Profile, Research) and Sharp Corp. (6753.T: Quote, Profile, Research) -- together equal only one-third of Nokia's, making research investments scattered and productivity improvements difficult to achieve.
Even two domestic leaders, NEC and Matsushita, which makes Panasonic brand products, posted losses in their mobile phone operations last business year ended on March 31.
Although they aim to turn a profit this business year, projected operating profits at their mobile phone business represent just a few percent of their company-wide operating profit estimates, respectively.
EXPENSIVE HANDSETS
Japanese makers' outlook for overseas operations have dimmed, with the majority of new markets in countries such as Russia, Brazil and India, where demand for high-end models -- Japanese makers' specialty -- is limited.
"The low-end segment in emerging markets is where volume demand is. In matured markets, fierce price competition is cutting into cellphone makers' profit margin," said Nahoko Mitsuyama, principal analyst at Gartner.
Japanese makers are ill-prepared for price wars after growing accustomed to domestic business practices where mobile carriers provide subsidies of several tens of thousands of yen (several hundred dollars) per unit, analysts say.
Mobile carriers pay those subsidies to keep retail prices low, sacrificing short-term profits for long-term gains from monthly fee charges to users.
Selling prices average $150-$200 for major overseas makers but are $400-$500 for Japanese makers, UFJ Tsubasa Securities analyst Yukihiko Shimada said.
"Since Japanese makers have been playing games like this in their home ground, they cannot quite adjust themselves to overseas markets," Shimada said.
ERODING EDGE
Even in the area of technological innovation -- Japanese makers' single most important competitive edge -- they find themselves being overtaken by South Korean rivals.
Photo-snapping phones, for example, were developed by Japanese mobile phone makers. But it was nimble global giants such as Samsung Electronics Co. Ltd. (005930.KS: Quote, Profile, Research) that took photo phones to the global market in volume.
Samsung outstripped Japanese makers in camera phone technologies by launching the world's first 5-megapixel model in October and unveiling a 7-megapixel product in March.
"It does not matter whether the 7-megapixel model sells well. By introducing such a product, Samsung can spread a brand image as a company with advanced technology," said Suguru Kagawa, researcher at Yono Research Institute.
With their cost competitiveness falling far behind global giants and reputation as technological leader eroding, growth prospects for Japanese mobile phone makers look dim, raising expectations for an industry shakeout.
"It is true that there are too many cellphone makers in Japan. It is also true that they are not in good health. There is a possibility that withdrawal could be the right answer for some of them," IDC's Kimura said.
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