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Pioneer’s ‘New Business’ Is Driving Today’s Sales

Pioneer Electronics. If the name still makes you think of Laserdisc and car stereo, think again. You haven’t paid attention in a while.

By March 31, 2003, the end of Pioneer’s fiscal year, 42 percent of its sales (representing 300 billion yen or about $2.45 billion under current exchange rates) will consist of what it calls “new business” product categories: DVD-related products, plasma TV and related products, car navigation and digital set-top boxes.

According to Kaneo Ito, president of Pioneer Japan, who along with Kaz Yamamoto, president/CEO of Pioneer North America, and Tom Haga, president of Pioneer Electronics (USA) Home Entertainment Division, visited TWICE headquarters just prior to International CES, those “new business categories are “the driving force” for Pioneer’s future.

Pioneer’s investments in those key categories are paying off, as its recent financial results attest. Operating income for its fiscal first half ended Sept. 30 is up 32.4 percent, net income is up 17.4 percent and operating revenue is up 9.8 percent, all versus the prior year. When Pioneer’s fiscal year ends in March Ito expects Pioneer’s operating income to be up 6 percent and net income up 1.5 percent, given the adjustment of a stronger yen vs. the dollar, among other monetary factors.

Overall Ito is upbeat on Pioneer’s current and future prospects, due to its investments in up-and-coming technology. Over the short term Pioneer has benefited from “plasma display sales, DVD recorder sales in Japan and improved car audio sales for the aftermarket.” He also cited cost reductions in audio/video production due to an ongoing plan to switch to China-based factories.

The U.S. market is “very important” to Pioneer, Ito said. He explained that 30 percent of Pioneer’s worldwide business comes from the United States, the same for Japan, with Europe at about 25 percent and the balance coming from the rest of the world.

Ito illustrated the opportunities Pioneer has created for itself with new technologies with plasma display performance in Japan. During July, August, September and October Plasma display sales in Japan either doubled or tripled. In October, sales hit 20,000 units, almost triple the 7,000 units of a year earlier. “Sales rose because there was more HDTV programming. World Cup soccer events especially drove sales of plasma displays.” He estimated that for calendar year 2002, sales will be double compared with 2001, at 220,000 in Japan, with Pioneer having sold 40,000 units.

“The market for plasma displays will double world wide in 2003 and should double in the U.S. during the new year,” Ito said. He volunteered that sales for the industry worldwide should go from 550,000 in 2002, to 1.1 million in 2003, 2 million the following year and 3.5 million in 2005.

To push the format in the U.S. Pioneer has had plasma display mall tours in eight cities nationwide during 2002, three PGA golf tournaments, an ATP Tennis event in Washington and, probably most importantly, placed plasma displays in almost 500 Best Buy New Technology departments. “Consumers can see and learn about what the product can do, which is good for us and for Best Buy.” Kaz Yamamoto pointed out that while the exposure at Best Buy, and also Circuit City, is great for the format “our prime channel for plasma displays are specialty chains, with our Elite brand.”

Pioneer is also gradually increasing its annual production capacity, which is now at 250,000 units with the opening of a new plant in Japan last September. That will go to 500,000-550,000 units annually once a fourth production line starts up during spring 2005.

Another key technology Ito discussed is car navigation. Again in Pioneer’s current fiscal year, ending in March, the company estimates worldwide sales at 4 million units. About 2.3 million of those sales will be in Japan, 1.2 million from Europe and around 300,000 from the U.S. Ito sees new products being introduced in Japan (see story below), coming to the U.S. and creating more demand here over time, both in hard disk car navigation and DVD-based products.

Of course recordable DVD is critical to Pioneer’s success, especially since the company has been a major backer of the DVD-R/-RW format. Ito provided projections on how Pioneer sees the market growing for both home-use DVD recorders and their PC rewritable ‘cousins.’ For example, for Pioneer’s fiscal year ending March 2003 the company expects global home-use DVD recorder sales hitting 1.3 million units with PC-rewritable decks reaching 4.6 million, with almost triple the growth rate for both categories come March 2004.

For high-definition DVD recording Pioneer backs the Blu-ray format, which was demonstrated at CEATEC last fall and will be shown at its booth during International CES this week. Ito cautioned that while the technology is exciting, it will take a while before Blu-ray, or any other HD format, reaches consumers. “This will take time, because you have to have enough programming first. Our focus is current DVD recorders. We must develop the market for the products we have now.”

He noted that between plasma displays replacing CRTs and DVD recorders replacing VCRs, “We have a huge potential market,” but warned that every CRT-based TV or VCR will be replaced overnight. “There is a really big potential when you talk about [plasma and DVD], which is why we are doing our best to promote this.” “