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Kenwood Japan Outlines Cutback Plan

Kenwood Corp. announced plans to close factories, cut 30 percent of its workforce, and concentrate resources on its car electronics and communications businesses to return the company to profitability by the end of the current fiscal year, ending March 31.

The planned cutback of 2,700 personnel will follow a cutback of 1,600 people announced in early 2001, when the company exited the CD-ROM and GSM wireless phone businesses.

Kenwood also announced that it hired Haruo Kawahara, a Toshiba advisor, as its third president in about as many years.

The company’s home audio business is destined for additional cuts, according to a company statement, but Kenwood USA executives said they doubted the company’s U.S. home audio effort would be targeted.

“Of particular concern is the home electronics business, which has been losing money for years,” said the parent company’s statement. “It has already been announced that this business will be drastically scaled back. Further announcements will be forthcoming soon.”

Kenwood USA VP Bob Law, however, pointed out that the U.S. operation has already significantly scaled back its home audio effort by leaving the mini-system, portable audio, and commodity-price markets. The company’s business in home theater systems and higher end audio components “is quite a good business,” he said.

Even so, home audio is a “minor share” of Kenwood’s U.S. business, he noted.

Home cutbacks are likely to come overseas, Law said, because “there are huge problems in the domestic Japan market. It [the domestic market] used to be the largest home audio market for Kenwood.”

In Japan, industrywide sales of traditional home components have fallen faster than they have in the United States, shelf system sales have shifted to PC-based music systems, and the home theater market is largely nonexistent, Law explained.

Kenwood exited the mini-system market worldwide early this year, but remains in the microsystem and portable markets in Japan and other foreign markets.

Kenwood USA president Joe Richter said he also doesn’t expect significant changes in the U.S. operation, given its strength in car audio, communications, and home audio. Nonetheless, he and Bruce Tatsuta, president of Kenwood Americas, another subsidiary of Kenwood Japan, will return today from a trip to Japan to meet with the new president to “determine his expectations for the U.S.,” Richter said.

The restructuring follows the second consecutive year of consolidated net losses. For the year ending March 31, Kenwood posted a net loss of approximately $213 million following the previous year’s loss of about $175 million. The company expects to post a net profit in the current year of about $56 million and eliminate its negative equity situation by March 31, 2004.

Also as part of the restructuring, Kenwood will close underperforming sales subsidiaries, slim headquarters staff, restructure sales subsidiaries, significantly reduce SGA expenses, and sell or eliminate unprofitable businesses will accomplish this reduction, a company statement said.

Kenwood will close its Mexico car amplifier factory, likely moving it to a new factory in China, to improve productivity, Law said. A France factory that largely manufactured car audio will shut down because of falling tariffs.