How the Recession's Affecting Consumer Electronics Stocks

Feb 8 13:01 2009 Michael Lombardi Print This Article

The job losses are piling up and they're doing so around the world. In Japan,Guest Posting home to the world's second largest economy, the automobile industry is taking it on the chin and so is the consumer electronics industry.

Sony Corporation (NYSE/SNE) just reported a huge loss and Panasonic Corporation ((NYSE/PC) just announced 15,000 jobs cut and the closure of some 27 plants around the world. According to Panasonic, everything it makes is suffering in the current economic downturn. The company just can't sell the microwaves, semiconductors and flat-screen TVs that it manufactures.

In its most recent quarter, Panasonic reported that its sales dropped 20% and it incurred a seven-hundred-and-nine-million-dollar loss. And, it's not just because sales are slow; the strong Yen is also hurting Japanese companies. Hitachi Ltd. (NYSE/HIT), Toshiba (Pink Sheets/TOSBF.PK) and NEC (Pink Sheets/NIPNF.PK) are all expecting to incur substantial losses this year.

I have a cousin who works in the consumer electronics business. He goes into people's homes and their places of business and installs huge projector screen home theater systems along with all the related sound equipment. I always ask him why flat-screen TVs haven't come down further in price considering how bad business is for the manufacturers. He says that the margin for flat-screen TVs is quite small and that the wholesale price to retailers is often only a few hundred dollars less than the retail price. His business has slowed somewhat, but is still doing well, because his customers are so well-heeled. When a customer drops $25,000 on a home theater system, this doesn't affect their standard of living.

Also contributing to the weakness in the consumer electronics business is the fact that the technology is changing so fast now that customers are actually waiting too long to make their purchases. Why purchase a florescent LCD flat-panel when you can hold out and get the LED-backed flat-panel with a much higher contrast ratio? The product life cycle for televisions in particular is so short now that consumers will wait long periods of time before upgrading and this adversely affects the ability of manufacturers and retailers to move product. This is why there isn't the kind of discounts you might expect right now, because retailers would be selling product at a loss and that would put them over the edge.

So, there certainly isn't a single industry that isn't affected by the current recession. We've got a lot more time for the current business cycle to play out.

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Michael Lombardi
Michael Lombardi

Mitchell Clark, B. Comm., Senior Editor at Lombardi Financial, specializes in small-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, such as Penny Stock Reporter, Micro-Cap Stocks, and Monster Profits. Mitchell, who has been with Lombardi Financial for eleven years, is currently authoring a book on how to pick small-cap stocks for maximum profits. Prior to joining Lombardi, Mitchell was a stock broker for a division of one of the largest financial institutions in North America.

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