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Panasonic Cuts Profit Forecast on Prices, Demand Drop (Update2)
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By Hiroshi Suzuki

Nov. 27 (Bloomberg) — Panasonic Corp., the world’s largest consumer-electronics maker, slashed its full-year profit forecast by 90 percent as the global recession damped demand and product prices fell.

Net income in the year ending March 31 will be 30 billion yen ($315 million), Panasonic said today. That’s less than the 310 billion yen estimate reaffirmed on Oct. 28 and the 281.9 billion reported a year earlier.

Panasonic said prices for flat-panel TVs will probably drop 30 percent this fiscal year, more than its earlier forecast for a 20 percent decline, because of deteriorating demand for consumer electronics. Osaka-based Panasonic joined Sony Corp. in cutting annual profit estimates and said reorganization costs and erosion of stock investments contributed to the worsening outlook.

“Even such a successful company as Panasonic can’t weather this harsh economic environment,” said Naoki Fujiwara, who oversees about $720 million at Shinkin Asset Management Co. “Plasma TVs, digital cameras, camcorders and DVD players: demand for these products has completely died down.”

Panasonic fell 4.7 percent to close at 1,284 yen on the Tokyo Stock Exchange, before the announcement on the forecast. The benchmark Nikkei 225 Stock Average gained 2 percent.

“The company’s business conditions are deteriorating sharply,” Panasonic said in a statement. “The current financial crisis originated in the United States, has spread across the world, and the business sentiment in Japan and overseas has significantly worsened.”

Lower Operating Income

Full-year operating profit, or sales minus cost of goods sold and administrative expenses, will be 340 billion yen, 39 percent less than earlier estimated, Panasonic said. The electronics maker had operating income of 519.5 billion yen last year.

Sales will total 8.5 trillion yen, down from the previous projection of 9.2 trillion yen and revenue of 9.07 trillion yen a year earlier.

Still, Panasonic has succeeded in cutting costs and compared with Sony, its operating profit is at an “acceptable level,” Fujiwara said.

“Though the stock may be sold tomorrow, they will likely come back to its current level soon,” he said.

Hitoshi Kuriyama, an analyst at Merrill Lynch & Co., yesterday estimated annual net income of 220 billion yen and operating profit of 420 billion yen and warned the projections might not represent “the worst-case scenario.”

Kuriyama also cut his investment rating on Panasonic to “neutral” from “buy,” citing weaker consumer sentiment.

Increased Expenses

The company said today that expenses to reorganize its business will increase by 130 billion yen this fiscal year, while losses on stock investments will widen by 60 billion yen.

The yen’s gains will cut full-year operating profit by 22 billion yen, and increased material costs will reduce earnings by 38 billion yen, Panasonic said.

The latest forecast is based on a projection for the euro to average 125 yen in the second half to March 31, compared with 135 yen estimated previously. The company maintained its estimate for the dollar to average 100 yen during the period.

The yen has gained 17 percent against the dollar this year, making it the best performer among 16 major currencies tracked by Bloomberg.

The lower earnings outlook is a setback for President Fumio Otsubo’s target of 10 trillion yen sales in the year ending March 2010.

Panasonic is also trying to gain a controlling stake in Sanyo Electric Co., and is in talks with three creditors to buy their holdings.

Goldman Sachs Group Inc., the largest U.S. securities company to convert to a bank, yesterday said it broke off negotiations with Panasonic because of disagreements over terms.

Sanyo Impact

The company hasn’t taken into account any effects from the planned Sanyo acquisition in its latest forecasts because nothing has been finalized in discussions with the banks, Director Makoto Uenoyama said at a briefing in Tokyo.

With the latest profit forecast, Panasonic’s return on equity will be 0.8 percent, Uenoyama said. Return on equity, or profit divided by book value, measures the earnings generated on the investment by shareholders. The company left unchanged its 10 percent return on equity target for the year ending March 2010.

To contact the reporter on this story: Hiroshi Suzuki in Tokyo at Hsuzuki5@bloomberg.net.

Last Updated: November 27, 2008 06:52 EST

Warren Buffett (July 2001):

The last time I tackled this subject, in 1999, I broke down the previous 34 years into two 17-year periods, which in the sense of lean years and fat were astonishingly symmetrical. Here’s the first period. As you can see, over 17 years the Dow gained exactly one-tenth of one percent.

Dow Jones Industrial Average
Dec. 31, 1964: 874.12
Dec. 31, 1981: 875.00

And here’s the second, marked by an incredible bull market that, as I laid out my thoughts, was about to end (though I didn’t know that).

Dow Jones Industrial Average
Dec. 31, 1981: 875.00
Dec. 31, 1998: 9181.43

Now, you couldn’t explain this remarkable divergence in markets by, say, differences in the growth of gross national product. In the first period–that dismal time for the market–GNP actually grew more than twice as fast as it did in the second period.

Gain in Gross National Product
1964-1981: 373%
1981-1998: 177%

So what was the explanation? I concluded that the market’s contrasting moves were caused by extraordinary changes in two critical economic variables–and by a related psychological force that eventually came into play.

Here I need to remind you about the definition of “investing,” which though simple is often forgotten. Investing is laying out money today to receive more money tomorrow.

That gets to the first of the economic variables that affected stock prices in the two periods–interest rates. In economics, interest rates act as gravity behaves in the physical world. At all times, in all markets, in all parts of the world, the tiniest change in rates changes the value of every financial asset. You see that clearly with the fluctuating prices of bonds. But the rule applies as well to farmland, oil reserves, stocks, and every other financial asset. And the effects can be huge on values. If interest rates are, say, 13%, the present value of a dollar that you’re going to receive in the future from an investment is not nearly as high as the present value of a dollar if rates are 4%.

So here’s the record on interest rates at key dates in our 34-year span. They moved dramatically up–that was bad for investors–in the first half of that period and dramatically down–a boon for investors–in the second half.

Interest Rates, Long-Term Government Bonds
Dec. 31, 1964: 4.20%
Dec. 31, 1981: 13.65%
Dec. 31, 1998: 5.09%

The other critical variable here is how many dollars investors expected to get from the companies in which they invested. During the first period expectations fell significantly because corporate profits weren’t looking good. By the early 1980s Fed Chairman Paul Volcker’s economic sledgehammer had, in fact, driven corporate profitability to a level that people hadn’t seen since the 1930s.

The upshot is that investors lost their confidence in the American economy: They were looking at a future they believed would be plagued by two negatives. First, they didn’t see much good coming in the way of corporate profits. Second, the sky-high interest rates prevailing caused them to discount those meager profits further. These two factors, working together, caused stagnation in the stock market from 1964 to 1981, even though those years featured huge improvements in GNP. The business of the country grew while investors’ valuation of that business shrank!

And then the reversal of those factors created a period during which much lower GNP gains were accompanied by a bonanza for the market. First, you got a major increase in the rate of profitability. Second, you got an enormous drop in interest rates, which made a dollar of future profit that much more valuable. Both phenomena were real and powerful fuels for a major bull market. And in time the psychological factor I mentioned was added to the equation: Speculative trading exploded, simply because of the market action that people had seen.

http://news.yahoo.com/s/ap/20081127/ap_on_bi_ge/holiday_bust_2

http://biz.yahoo.com/seekingalpha/081126/108171_id.html?.v=1

Mike,

I’m currently accumulating INTC right now. They had a big pop today but their yield is sitting at 4% and their payout ratio is a relatively safe .4. Their balance sheet is pretty clean. They are very Buffetesque too. Ubiquitous, high barrier to entry, not going anywhere soon. They are the safe side of my portfolio. I like to say to people these days they are safer than a bank. You may want to wait until January after all the tax loss selling for the year is washed through the system but I think INTC has seen its low. It might test it again but I don’t think it will go much lower.