Japan elecectronics makers set for solid Q3

Sony Corp and other Japanese electronics makers will likely post robust earnings recoveries for the last quarter on strong year-end sales, and lighter post-holiday inventory bodes well for their outlook.

Following the global downturn in 2008, Panasonic Corp, Canon Inc as well as Sony have slashed costs and pursued M&As to boost competitiveness, and are now ready to reap the benefits of their turnaround measures as the economy recovers and consumers cautiously loosen their purse strings.

"US Christmas demand was better than expected. In January-March a year earlier, they were forced to almost halt output to clear inventory. This year, they don't need to worry about that," Mizuho Securities analyst Ryosuke Katsura said.

"Top-line recovery, however, has not been as good as profit recovery since they were after profitability rather than market share. In that regard, their earnings may not look as good as those from South Korean rivals like Samsung."

Japanese electronics makers have been struggling to compete with nimbler South Korean firms such as Samsung Electronics Co and LG Electronics Inc in a wide range of electronic products including flat TVs and mobile phones.

Sony, which offers Cyber-shot digital cameras and Vaio PCs, saw sales of its PlayStation 3 game console grow sharply after a price cut earlier last year, although its cellphone joint venture with Ericsson remained in the red.

Analysts polled by Thomson Reuters I/B/E/S on average expect Sony to report an operating profit of ¥70.7bn ($786m) for October-December, its first profit in five quarters.

But according to StarMine SmartEstimates, which predicts future earnings by putting more weight on the recent forecasts of top-rated analysts, Sony's operating profit may fall short of the consensus estimate by 19 per cent.

Canon, the world's largest digital camera maker ahead of Sony, enjoyed brisk demand for high-end digital cameras with interchangeable lenses in the final quarter of 2009, while facing slow recovery in corporate demand for copiers and printers.

Canon last year cut billions of dollars in costs and unveiled a plan to buy Dutch printer maker Oce NV to lay a new foundation for growth, and will likely forecast its first annual profit gain in three years for 2010.

"Products like copiers are for corporate customers and companies have got an annual budget to stick to," JPMorgan analyst Hisashi Moriyama said.

"But once they have moved into a new financial year and if things are looking up for them, they are willing to boost spending to drive sales."

Canon's financial year ends on December 31, while most other listed Japanese companies close their book on March 31.

Panasonic may revise up its outlook for the current business year to March to include Sanyo Electric Co Ltd's January-March earnings, analysts said.

Panasonic in December bought a majority stake in Sanyo, the world's largest rechargeable battery maker and a major solar cell producer, taking aim at growing demand for greener energy sources for cars, homes and offices.

Sharp is set to join Sony, Canon and Panasonic in reporting an earnings turnaround in October-December, but the degree of recovery may have fallen short of market expectations due to start-up costs for its state-of-the-art LCD panel plant that came on stream in October.

According to StarMine SmartEstimates, quarterly operating profits at Sharp, the world's fourth-largest LCD TV maker behind Samsung, Sony and LG, are likely to show a downside surprise of 8.1 per cent.

Nintendo Co Ltd, locked in a three-way battle with Sony and Microsoft Corp in the game industry, will likely post a slide in quarterly operating profit, hit by slower sales growth in its hardware and a price cut for the Wii console.

"Nintendo did have good holiday sales. But if you take a look at a recent list of best-selling game software, you notice the number of PlayStation 3 titles creeping up," Rakuten Securities analyst Yasuo Imanaka said.

"A year ago, the game sector was nothing but the Wii and DS, but that's not the case any more."