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The Honolulu Advertiser
Posted on: Sunday, May 13, 2001

Sanyo chief out to make perfect computer chip

Bloomberg News Service

TOKYO — Sanyo Electric Co.'s Yukinori Kuwano reckons the best way to develop computer chips isn't at a microscope in a laboratory. It's chatting with students over a coffee about what's hot in consumer electronics.

So when Kuwano was promoted to company president from the chip unit's chief in November, one of his first moves was to open a center in Tokyo's trendy Shibuya area, where researchers lounge on sofas and swap ideas with young geeks and entrepreneurs.

His focus on developing chips for the latest, must-have products is vital as Asian rivals flood the market for more basic components and the global economy slows. Not only must Kuwano keep moving Sanyo into new fields before his rivals do, he also needs to shut down businesses whose time has passed.

"Kuwano needs to show what will lead Sanyo higher," said Kazumasa Kubota, an analyst at Okasan Securities Co. "Since he's dealt with semiconductors, I'm hoping to see unique chips developed by Sanyo. That will help the company build a brand."

Kuwano, 60, has a background in research. After graduating from the science department of Kumamoto University, he joined Sanyo in 1963 and helped develop solar batteries, digital cameras and mobile phones. As head of Sanyo's semiconductor unit for 19 months until his promotion in November, he tried to keep developers focused on the latest consumer trends.

It was a strategy which helped the unit's operating profit almost triple in the six months ended Sept. 30 and a report due today is likely to show that momentum continued after his promotion with the unit's profit doubling in the second half.

The chip unit set the pace as group net income rose 13 percent to 20.5 billion yen in the half, according to the average of five analysts' forecasts polled by Bloom-

berg News. It's on track to meet its full-year forecast of doubling earnings to 40 billion yen.

This year, though, a slowdown in demand for mobile phones and computers will hold back profit. Earnings are likely to fall by less than 10 percent in this fiscal first half, the company forecasts.

That may not be good enough for investors. While Osaka-based Sanyo's shares are down 21 percent since the start of this year, recently at 751 yen, the stock still trades at 35 times estimated earnings, compared with 27 times for rival Toshiba Corp.

So it's no surprise that Kuwano is eager to find new products to complement Sanyo's position as the world's largest maker of mobile phone batteries and digital cameras.

About 13 chip engineers are based in the center in downtown Tokyo, while others take the train into the city from Sanyo facilities in the outskirts. University students, Internet entrepreneurs and electronics executives come from nearby to sit in sofas, drink free coffee and browse the orange bookshelves.

"He brought the product angle to our component business, awakening us," said Hiro Yagi, who suggested the center to Kuwano and is now in charge of generating product ideas from it.

Kuwano plans to double the number of engineers with digital technology expertise to 10,000 by March 2004, through hiring and training.

To build brand-awareness, the company, which still makes most of its cameras for Olympus Co. and other brands, is now advertising its own-brand iDshot model. The two-month-old product can store 730 megabytes of data, or 12,000 pictures.

The campaign is part of Sanyo's struggle to break from its image as a maker of inexpensive televisions and no-frills refrigerators.

Formed in 1947 by Toshio Iue, brother-in-law to Konosuke Matsushita, a founder of Matsushita Electric Industrial Co., Sanyo began as a producer of bicycle lights. It branched into the production of refrigerators, TVs and washing machines in the 1950s, enjoying strong demand as Japan rebuilt itself after World War II.

When Japan's economy slumped in the past decade and developing nations started to catch up in technology, Sanyo was slow to respond. International rivals such as Whirlpool Corp. sustained profits only by shedding thousands of workers and withdrawing from unviable businesses.

Sanyo, hamstrung in those efforts by Japan's tradition of lifetime employment, lost 26 billion yen in the year ended March 31, 1999 on sales of 1.9 trillion yen.

It took the first appointment of a president outside the Iue family, in June 1998, to change Sanyo's course. Sadao Kondo, who like Kuwano came from the chip division, announced plans to shed 6,000 staff over three years and to exit unviable businesses.

While Kondo resigned in October to take responsibility for a subsidiary's sale of defective solar panels, Kuwano carried on in the same vein. He announced plans to cut 6,000 staff, or 12 percent of Sanyo's local work force, in the three years starting next April. That's the same number as Kondo's three-year staff cut plan.

Kuwano also turns to his scientific training when it comes to identifying businesses to scrap. He plots operations on a graph with current profits on the verticle axis and potential profits on the horizontal axis.

Those in the bottom left are in danger and managers need to prepare what he calls 'counterattack scenarios.'

"I've declared to everyone that without counterattack scenarios, I'll go for a retreat," Kuwano said in an interview in January. "Because we can't do everything, we will concentrate on some categories while we restructure others."