JVC Kenwood Targets Rapid Car CE Growth

By Joseph Palenchar -- TWICE, 10/2/2008

Yokohama, Japan — JVC Kenwood Holdings, formed Wednesday by the long-awaited merger of JVC and Kenwood, wants to make OEM and aftermarket car electronics business as its top product category.

It wants car electronics to be “the [company’s] largest segment in total sales,” JVC Kenwood said in a statement without mentioning a timetable.

The company reorganized its business segments into car electronics; home/mobile, including home and portable audio, TVs and camcorders; entertainment; and professional systems, including wireless communications and professional audio and video.

The publicly traded holding company, which wholly owns JVC and Kenwood, said its “goal is to quickly maximize synergies in the car electronics business, from which JVC Kenwood [Holdings] expects the greatest synergies in this management integration.”

To accelerate its car electronics business, the merged entity said it expanded the scope of its previously created joint venture, J&K Technologies Corp., beyond home, car and portable audio R&D to include product development, design, procurement and production. As a result, six car-related development and production subsidiaries became subsidiaries of J&K Technologies. Also to bolster its car electronics standing, JVC Kenwood vowed to increase its presence in car navigation systems.

For the fiscal year ending March 2009, the two companies previously forecast car electronics would account for 18 percent of the two brands’ sales, with the home/mobile segment accounting for 43 percent. Professional systems would account for 14 percent, with entertainment accounting for 9 percent. Other businesses would account for 16 percent of sales.

In the newly created home/mobile segment, the company called its camcorder business “highly profitable” and described its TV and home audio businesses as “unprofitable.” As a result, the home audio business will accelerate recently launched restructuring efforts, which have included the elimination of unprofitable models, collaborative efforts to improve cost competitiveness, lineup improvements though joint-development efforts, and a stepped-up focus on the profitable A/V accessories business. The intent is “to quickly develop the home and mobile business segment as an earnings-creating segment,” the company said.

Also to boost home/mobile profitability, JVC previously curtailed most of its TV business in the Japan market, outsourced U.K.-based production of LCD TVs for the European market to Funai in Poland, and began supplying LCD TVs from JVC’s Mexico factory to Funai for marketing under Funai’s brands in North America. The holding said it plans “to finalize these reforms further to create earnings at an early stage” and to launch “unique, high-premium products that optimize proprietary technologies.”

Because of such reforms and other cost savings resulting from the merger, the company forecast that it would turn a profit in the fiscal year ending March 2009 although sales would be down dramatically. The company forecast sales of $3.76 billion and a net profit of $47 million based on an exchange rate of 1.06 yen to the dollar. That would contrast with previous-year combined results of $7.8 billion in sales and a net loss of $417.2 million.

For the fiscal year ending March 2011, the company forecasts sales will boomerang back up to $7 billion with $367 million in operating income.

The company also said it plans to boost operating profit margins to 5.2 percent for the year ending March 2011, up from an estimated 3.1 percent in the current fiscal year.

Because the company intends “to concentrate on building a firm business foundation for the combined business entity and achieving maximum synergies,” it does not plan to pay a year-end dividend for the year ending March 2009.

In the U.S., Keith Lehmann, senior VP of Kenwood USA’s CE division, said “very little integration has happened yet in the U.S.” He added, “I don’t expect significant integration in the next year or so.”

He agreed that, for the holding company, “car electronics is the major growth area.” Both brands, he noted, could increase their penetration of the automotive OEM market, where their shares “are not huge,” enter new automotive product categories, and perhaps tap the expediter market.

Although Kenwood exited the U.S. home audio market several years ago, the brand is “actively considering” a reentry with lifestyle-oriented products, but not in the near future, he said. Kenwood still markets home audio in the U.K., Japan and a few other markets, he noted.

Major shareholders in the holding company are Panasonic with 24.4 percent of shares, Kenwood with 11.3 percent, and Sparx Asset Management.