Cellphone Makers Restructuring

Digital deflation, the market aberration that sees prices fall as fast as products improve, is hitting no industry harder than cell-phone hardware. Handset makers are restructuring, but the problems may be bigger than any single company can handle. In a recent interview, NEC President Akinobu Kanasugi said the company aims to decide by June on a drastic restructuring measure, such as operational alliance and integration with a rival. “If we fail to recover profitability (this year), we will be punished by the stock market,” he said.

NEC introduced more than 20 models in China in 2004, but the aggressive marketing only expanded its losses. For the year ending March, the company is projecting an operating loss of more than 30 billion yen from its cell-phone business, following a 25-billion yen loss the previous year.

Kanasugi said the nation’s 15 or so manufacturers are waging a war of attrition. “It is impossible to recoup investments,” he said. “Development costs are surging because handsets continue to add functions, but subscriber growth is slowing and product life cycles are becoming shorter.” Continue