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Pioneer Sets Goals To Reduce Costs

12/12/2005 12:27:00 PM Eastern

Tokyo — In an ambitious plan to cut costs, Pioneer plans to minimize its dependence on its plasma display OEM operation, focusing instead on selling finished Pioneer-brand products.

Fluctuations in sales volume for its OEM operations were labeled the main cause of this fiscal year’s poor performance, said Pioneer, which plans to optimize a balancing of output and sales volume in order to minimize prospective losses for its panel production.

Pioneer expects to continue research and development of active-matrix OLEDS, aiming to benefit from its product patents, but will end mass production because the company said this can’t be done profitably.

Increases in sales of plasma displays contributed to a 1.4 percent rise in Pioneer consolidated revenue in the company’s fiscal second half, ended Sept. 30, despite decreased sales of DVD products. However, the company reported an amended $481 million net loss for the first six months.

To help wipe out its red ink, Pioneer said it will consolidate worldwide production sites from 40 to about 30, eliminate 2,000 jobs and lower research expenses by stepping up cooperation and alliances with other companies. Cost reduction also will apply to the company’s overseas sales subsidiaries, while Pioneer said it will de-list its shares from the New York Stock Exchange.

The company is being reorganized into a two-department setup that includes a home entertainment business group and mobile entertainment business group.

All operations related to plasma displays, DVD products and home audio will be integrated in home entertainment. This will enable the company to develop common platforms, products and functions across multiple product categories more swiftly and efficiently, it said. This staff, which currently is working in three locations, will be consolidated at one location in Japan by spring of 2007.

Specifically, Pioneer plans to stimulate high added value by focusing on slim recordable DVD drives for notebooks and continue to shift core development to drives for Blu-ray Discs, where sales are expected to grow dramatically.

It also plans to revitalize its core home audio business, including such products as premium home theater systems, audio systems that upgrade PCs and television sets into full-scale personal theaters, and products fully compatible with portable digital audio player connections.

In its mobile entertainment business, Pioneer expects to ensure profit by strengthening its after-market car audio business, expand its after-market car navigation business and expand the category’s OEM business.

As an adjunct to Pioneer’s reorganization situation, Standard & Poor's Ratings Services said it has downgraded its long-term corporate credit and senior unsecured debt ratings for the company by one notch to “BBB-,” with a negative outlook.

S&P said the downgrade reflects the sharp drop expected in Pioneer's earnings due to a slump in the home electronics business, and deterioration in cash flows and capital structure, due to cost burdens arising from business restructuring measures.

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