VZCZCXRO8890
PP RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHNAG RUEHPB
DE RUEHKO #0232/01 0300842
ZNR UUUUU ZZH
P 300842Z JAN 09
FM AMEMBASSY TOKYO
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RUEHBS/USEU BRUSSELS PRIORITY

UNCLAS SECTION 01 OF 02 TOKYO 000232 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/J 
PASS USTR FOR WCUTLER, MBEEMAN 
PASS DOC FOR KROTH, DLEE 
 
E.O. 12958: N/A 
TAGS: ECON ETRD JA
SUBJECT: METI COMMENTS ON JAPANESE ELECTRONICS INDUSTRY 
 
TOKYO 00000232  001.2 OF 002 
 
 
------- 
Summary 
------- 
 
¶1. (SBU) Japanese electronics manufacturers are expected to 
announce grim 3rd quarter financial results over the coming 
days.  The Ministry of Economy, Trade and Industry (METI) 
acknowledges the difficult conditions affecting this 
bellweather sector of Japan's economy, but is looking more at 
adjustments the industry should make to improve long-term 
competitiveness once the current crisis is past. 
Anticipating continued price pressure from foreign 
competition, METI's sense is some of the restructuring that 
companies are carrying out now will translate into good 
opportunities once demand improves.  End Summary. 
 
--------- 
Grim News 
--------- 
 
¶2. (SBU) Japan's electronics and IT industries are world 
leaders and part of the bedrock of Japan's economy, but they 
too have been hit hard in the global economic crisis.  In 
recent days, Japanese media have reported Panasonic will 
close three overseas manufacturing plants in Malaysia and the 
Philippines and is projected to report record losses 
approaching USD 3 billion for the year ending in March. 
Semiconductor chip makers NEC, Toshiba, and Renesas will stop 
producing at older production lines and consolidate at more 
efficient facilities.  Each company will lay off roughly 
1,000 temporary workers.  Ricoh reportedly will cut 
production over 10 percent, lay off 250 temporary workers, 
and reduce hours for many more.  Reports of financial results 
for the third quarter (Oct - Dec) are expected to be poor. 
Scheduled reports include:  Sony, Toshiba, and NEC January 
29; Fujitsu January 30; Panasonic February 4; and Sharp 
February 6. 
 
----------------- 
A Government View 
----------------- 
 
¶3. (SBU) Emboff discussed the state and prospects of the 
electronics sector with METI Information and Communication 
Electronics Division Director Takayuki Sumita.  Sumita noted 
METI had expressed concern in a September 2008 report on the 
sector.  He reiterated the well-reported problems firms face 
-) reduced demand, a strong yen, and poor credit 
availability -) but also asserted that industry is 
responding aggressively. 
 
------------------------ 
Responding to Challenges 
------------------------ 
 
¶4. (SBU) Sumita cited over-production as one challenge facing 
the industry and, while the current crisis is painful, felt 
consolidation could make Japanese industry more competitive 
in the future.  While he sees Japanese electronics 
manufacturers' responsiveness to customer needs as a 
strength, Sumita observed small or special orders can be 
costly and companies squeezed by price pressures may 
sacrifice flexibility. 
 
¶5. (SBU) Japanese manufacturers' tendency to maintain very 
broad product lines, Sumita argued, also reduces 
competitiveness.  He suggested Japanese electronics 
manufacturers will need to be more competitive and that 
greater specialization will be an important trend.  He cited 
Toshiba's success, prior to the current downturn, 
specializing somewhat in non-flash memory and nuclear power 
applications, and asserted that this strategy is sound and 
should help Toshiba when demand starts to recover. 
Unfortunately, in the current market, this specialization has 
also exposed Toshiba to greater short-term risks.  As 
companies cut production and reduce inventories to weather 
 
TOKYO 00000232  002.2 OF 002 
 
 
the current market, Sumita would like to see them take the 
opportunity to streamline to improve their post-crisis 
competitiveness. 
 
-------------------- 
Weathering the Storm 
-------------------- 
 
¶6. (SBU) Contrasting electronics and autos, Sumita noted in 
addition to consumer electronics products, the industry 
produces components for a wide range of other sectors.  It is 
therefore fairly diversified across the economy.  While this 
situation does not mitigate a downturn like the current one, 
he suggested both the fall and recovery in electronics will 
likely be more gradual than in autos. 
 
¶7. (SBU) Asked about possible government assistance to 
hurting electronics manufacturers, Sumita said they would be 
eligible for the same sort of support available to ailing 
firms in other sectors.  Such aid could include a range of 
possible measures directed at markets or at individual 
companies, but he said METI is not yet considering direct 
assistance to any specific electronics firms. 
 
¶8. (SBU) In conclusion, he opined there are talented leaders 
in several electronics sector companies and, while companies' 
reactions vary considerably to the global economic situation, 
they are responding urgently and seriously.  Without 
specifying particular companies, he thought some will do 
better than others.  However for the industry as a whole he 
seemed optimistic that it would weather the storm and could 
emerge stronger as a result. 
ZUMWALT