According to a report from the Japanese government, the Japanese economy grew at an annualized rate of 5.5% in the fourth calendar quarter of last year - higher than the 5% expected and further evidence that the long moribund economy is finally moving into sustainable growth territory. Rising consumer spending on flat panel TVs and portable music players, plus robust exports of flat panel TVs and cars, particularly to the US, drove growth. Auto analysts think Toyota may actually beat General Motors in the US for the first time ever in 2006. Exports to China also figured prominently.

Chris Chinnock
Sr. Analyst and Sr. Editor
of Insight Media

While the news is very good for the world’s second largest economy, the effect is not raising all boats simultaneously. Many of the big Japanese consumer electronics companies continue to struggle.

Nevertheless, this was the fourth consecutive quarter of growth for the country, pushing the overall growth rate for 2005 to 2.8%. The US economy grew at a rather anemic 1.1% in the fourth quarter by comparison, while the European Union economy registered a 1.3% rise in all of 2005. The Japanese economic strength is proof that Japan is finally emerging from more than a decade of economic stagnation.

Particularly heartening was a return of strong domestic demand, which rose 0.8% in the fourth quarter. Previous growth has been built solely on exports, so this is good news, but a continuation of this pattern will be needed to sustain growth. Strong domestic demands fuel profits, which helps create jobs and boost spending - a self-supporting cycle that has eluded Japan for a long time.

Some of Japan’s big electronics companies continue to struggle nonetheless. NEC Electronics for example, posted an operating loss of $61M for the fiscal 3Q’05 on sales of $1.4B. Sanyo has been struggling in the consumer electronics market, unable to make headway against fierce market competition, and is expected to book a $1.7B loss in its 2005 fiscal year, ending March 31.

Meanwhile, JVC saw declining domestic business as LCD-TV growth was insufficient to make up for a decrease in sales of DVD equipment. But its US sales improved in fiscal 3Q, fueled by sales of HD-ILA projection TVs and camcorders, the company said. This combination of results led to overall flat company-wide CE sales for the three-month period, coming in at $1.58B. In the nine months, CE segment sales slipped 2% to $4B from $4.1B.

Bucking the trend was Mitsubishi Electric, which announced group net profits of $271.5M for its fiscal 3Q ended Dec 31, up 88% from $144.36M profit in 3Q04. It attributed its success to a robust demand for factory-related production equipment and improved profitability in its electronic device business.

Toshiba reported a 15% jump in its fiscal third-quarter sales of digital CE products, hitting $5.9B, up from $5.2B a year ago. The company saw higher sales of hard disk drives, mobile phones and PCs. For the nine months, the CE segment enjoyed an 11% increase in sales, to $15.8B, up from a year earlier $14.2B.

Japanese CE companies will continue to feel competitive pressure, but if their domestic market is back, that could help most of them move into the black.