Market Insight

Toshiba to cut 2 TV Plants and 2,000 Overseas Jobs by end of Financial Year 2014

September 30, 2013

Jusy Hong Jusy Hong Research and Analysis Director, Smartphone

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Toshiba is consolidating its TV production and will shut down two of its three overseas production facilities by March 2014. The Japanese company currently operates plants overseas in Indonesia, China and Poland. The company has not yet disclosed which of these plants will remain in operation.

As the TV industry has been falling into more and more price focused competition, the restructuring of conventional TV brands is continuously happening. Japanese brands especially, have been doing TV business restructuring lately. This is not only because they are losing market share to Korean brands such as Samsung and LG, but they also didn't respond to a fast changing TV market and sharply decreased sales volume and revenue from local TV market in Japan.

This restructuring news of Toshiba's overseas factory was foreseeable, as its growth rate up to 2010 caused it to build excess capacity which it cannot utilise in the increasingly competitive TV market. In 2010, Toshiba's LCD TV shipments recorded 66 per cent year-on-year growth, much higher than the industry average of 28 per cent and twice as high as Chinese TV brands that averaged 30 per cent. As a result, Toshiba became the fourth largest TV brand by volume, overtaking Sharp in the same year. In Japan's local LCD TV market, Toshiba gained market share and caught up close to Sharp, the number one TV brand in Japan.

However, the Japanese market was driving a local production bubble due to consumer preference to buy local, Japanese brands, subsidised by the governments aggressive Eco-points programme. In 2010, the Japanese local TV market experienced enormous growth, reaching 22 million units and up 100 per cent on the previous year. This was caused by digital terrestrial broadcasting transition along with Eco-point policy by Japanese government to enhancing digital product consumption. But the party didn't last long. Even though the local market showed other strong sales in 2011 it later collapsed to near half size in 2012. Expecting this market freezing, TV brands started a price competition by offering on average 30 per cent discount to catch last minute demand, leading to a worsening profitability of TV business. This aggravated the overall profitability of Japanese brands. A continuing oversea business slump together with local market stagnation doubled the torment for Japanese TV brands. This situation cannot be changed easily.

Sharp is also planning selling off its oversea TV factories and Sony sold off its TV factories in Mexico and Europe several years ago. As TV market faces more price and cost pressure, the possibility of a new technology bringing a boom to the TV market again continues to decrease. After LED TV, new TV features such as 3D, Smart TV and upcoming UHD haven't and are unlikely to have the same impact as past innovations. Moreover, Chinese TV brands looking at the overseas market and planning to enhance their brand presence in emerging region continue to undercut new technologies and disrupt the opportunity for the established makers. This will be a huge threat to global TV brands. Shifting to more value-added product such as software functionality or content deals will help avoid direct price competition with low-end hardware makers, but in the absense of a business model to make big returns at retail most brands, like Toshiba, will also have to squeeze overheads and cut fixed cost to stay in the market.

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