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As TVs Lose Luster, Panasonic Pushes Lower-Key Products

As TVs Lose Luster, Panasonic Pushes Lower-Key Products

As TVs Lose Luster, Panasonic Pushes Lower-Key Products

President Tsuga Emphasizes Auto Parts, Solar Panels and Airplane Entertainment Systems

Updated Feb. 4, 2014 4:46 a.m. ET

Panasonic devoted a sizable chunk of its CES display in January to airplane entertainment systems. Agence France-Presse/Getty Images

TOKYO— Panasonic Corp. 6752.TO +18.94% saw a double-digit rise in profit for the third quarter, as stellar growth in a string of lesser-known niche businesses offset the decline of its vaunted television business.

These businesses—which include auto parts, solar panels and airplane entertainment systems—have been quietly building market share for decades. And unlike many of Panasonic’s traditional electronics products, they are thriving: The company expects their combined revenue to double that of electronics in four years.

Now, executives say, Panasonic is ready to put these businesses, which have remained largely in the shadows, front and center.

“Our image of Panasonic as plasma TV is dominating. We have to change that image,” President Kazuhiro Tsuga said in an interview on the sidelines of the Electronics Show in Las Vegas in January. Under Mr. Tsuga, the company has pulled out of manufacturing plasma display panels, a business that has been in the red since 2009, while bringing more attention to lower-key products.

As global competition rises among television makers, Panasonic is changing the focus of its once thriving television business. The WSJ’s Deborah Kan speaks to Panasonic’s President Kazuhiro Tsuga about the company’s change of strategy.

At CES, Panasonic devoted a sizable chunk of its booth display to in-car audio and airplane entertainment systems, alongside its lineup of new ultra high-definition televisions.

For the nine months through December, Panasonic’s consumer segments—including TVs, digital cameras and household appliances—accounted for 36% of total sales, while housing and auto-parts businesses (which include solar panels, car navigation systems and lithium-ion batteries) made up about 60%.

Underscoring its transition, Panasonic said Tuesday its net profit for the October-December quarter increased 20% from a year earlier to ¥73.7 billion ($730 million), helped by robust sales in its housing and auto businesses.

Shares of the company surged 15% in morning trading Wednesday in Tokyo.

Still, the gap left by sliding electronics demand will take time to fill, executives and analysts say. The company’s revenue target for this year—¥7.4 trillion through March—is still nearly 20% below the fiscal 2007 level before the global financial crisis. Flat-panel TV sales, for example, are now roughly half of the ¥1 trillion logged five years ago.

Analysts say Panasonic’s success hinges on its ability to continue to make a nimble transition away from just making hardware for consumers to providing software-based technology that connects cars, houses and planes via the Web.

Panasonic executives say the auto, solar and aviation businesses have built their global presence by leveraging the company’s overall brand strength and its manufacturing resources—as well as by adopting consumer-electronics technologies for their own products.

“We are in a unique position, knowing the consumers’ taste,” Mr. Tsuga said.

Increasingly Mr. Tsuga is bringing the company’s little-known aviation business to the forefront, often citing it as one of Panasonic’s three healthier businesses next to auto and housing, which includes solar panels.

Pedestrians pass a Panasonic advertisement in Tokyo on Jan. 4. Agence France-Presse/Getty Images

The aviation business—which is part of its electronics segment because of the overlap in technologies—dates back to the late 1970s when it began making speakers for airlines. In 2011, Panasonic had a 52% share in the global market for in-flight entertainment, followed by French electronics system maker Thales SA’s 17%, according to consulting firm Frost & Sullivan. More recently, industry watchers say Panasonic’s share is over 70%.

“We’re kind of like a private bank. Our premium customers know us very well, but we just didn’t want too much attention in general,” said Paul Margis, chief executive of Panasonic Avionics, in a rare appearance before the media during CES.

Sales from aviation, lumped together with Panasonic’s TV, digital camera and tablet businesses, are still a tiny portion of the company’s overall revenue, which totals over $70 billion. But after taking over as president in 2012, Mr. Tsuga realized that it was a “a very good, long-term business,” Mr. Margis said.

Research firm Frost & Sullivan estimates Panasonic’s global in-flight entertainment revenue will increase to $5.3 billion in 2020 from $1.8 billion in 2011.

Panasonic also has a strong foothold in an expanding market for auto products. The global market for in-car entertainment systems including portable navigation devices is expected to grow to $45 billion by 2018, compared with $35 billion in 2012, according to research firm IHS. Panasonic is a top supplier of these systems, with revenue of nearly $4 billion and a 12.1% share in the global market.

But it is also a field where global technology giants such as Google Inc., GOOG +0.43%Apple Inc. AAPL +1.45% and Samsung Electronics Co. 005930.SE -0.96% are pouring in. “The competition will be higher. There is a lot of movement to get expertise in software,” said IHS analyst Luca de Ambroggi.

Mr. Tsuga argues that the company’s long-standing ties, for example with global auto giants dating back to the 1950s, will help Panasonic keep its edge even as new players flood the market. “The hurdle or barrier to entering the car business isn’t so low,” he said.

Panasonic’s transition reflects a general trend among Japan’s tech companies, fromToshiba Corp. 6502.TO +1.70% to Hitachi Ltd. 6501.TO +2.80% , to expand their reach into green technologies, infrastructure and medical devices to fill the void left by falling sales in consumer-electronics products.

Panasonic’s continuing growth in auto, aviation and solar, analysts say, will be tied to the company’s ability to deliver online services that will allow customers on planes and cars to stay connected to smartphones and tablets, and enjoy content that can be delivered via the Web.

“That connectivity market is where the future growth is really going to start to get big. It does force the big companies to become more nimble and flexible,” said Michael Planey, a product-development consultant for the in-flight entertainment industry who doesn’t have ties with Panasonic.

To help fill weak spots in software development, Mr. Tsuga has said he would carry out acquisitions as the company aims to double revenue in both housing and auto businesses to ¥2 trillion by 2018.

It already bought, for example, Berlin-based Aupeo GmbH for an undisclosed price last April to get hold of its content and audiostreaming technology. By 2018, Panasonic aims to achieve a “connected airplane” that will allow airlines to monitor passengers’ entertainment usage by linking the networks on the ground with the plane via the cloud, Mr. Margis said.

At the Las Vegas show, the company also demonstrated its latest cloud technology using prototypes of two devices—shaped in the form of a pendant and a wristband—that can be worn to give voice commands using the cloud to turn on the TV, the car or to lock the door when leaving the house. Panasonic officials say they will aim to bring the cloud technology outside of houses and into cars, planes and medical devices.

Still, Mr. Tsuga admits the industry changes are occurring quickly, as its hardware becomes more linked to the Web or a cloud service.

“The software can progress more rapidly than the hardware’s progress. That is happening for sure,” he said.

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