Japan’s Small Audio Makers Face an Uncertain Future

Japan’s smaller manufacturers of audio equipment, once sterling examples of high-tech success, are encountering heavy static in the face of new technology, the strong yen and rising Asian competition.

Indeed, many specialist audio equipment makers will survive only by linking up with bigger firms or diversifying into new businesses, industry analysts say.

“The audio industry is ripe for consolidation,” said Noriko Manabe, an analyst at Jardine Fleming Securities.

Hardest hit are the smaller specialists such as Sansui, Nakamichi, TEAC and Kenwood, to name but four of 27 Japanese audio equipment makers.

Sansui, an amplifier manufacturer, is the hardest hit, with group losses of $147 million (19.4 billion yen) since 1985, according to analysts’ reports.

Most small audio makers are still turning a profit, often thanks to computer- and communications-related businesses. But they know things will get tougher.

“Our corporation will suffer more, of course,” said Kazuyoshi Ishizaka, president of Kenwood, Japan’s second-biggest specialized audio maker. “Still, I am not desperate. I almost feel certain that we can survive somehow, I don’t know exactly how,” Ishizaka said in an interview.

The squeeze is occurring on all fronts.

Overseas, where the companies have traditionally made the bulk of their sales, the strong yen has cut profitability to nearly zero at a time South Korean and other Asian producers are making market inroads.

And domestic business is saturated and shrinking as well.

“Over 90% of purchasers of audio equipment are under 25 and the most active customers are between 15 and 19,” Manabe said in a recent report. “This teen-age population is peaking in Japan this year.”

Sales of separate stereo components are declining as consumers increasingly choose mini-component systems, a boon to firms with large, integrated manufacturing facilities such as Sony and Matsushita Electric Industrial--maker of Panasonic, Technics and National brand gear.

New technologies are also threatening smaller firms.

“Ever since the compact disc came in, they have had to turn to companies like Sony and Matsushita for optical and semiconductor technologies,” said an analyst at a major Japanese brokerage.

The digital audio tape recorder, a potential boom product held back by copyright disputes, does not offer salvation either because it uses technology similar to the videotape recorder, a product with which they have little experience.

Mergers and acquisitions, which have a long history in Japan’s audio industry, have also taken their toll on the smaller end of the industry.

In 1953, Matsushita, the world’s biggest consumer electronics firm, bought half of an ailing JVC (Victor Co. of Japan), now a leading maker of videocassette recorders.

In 1969, during an industry downturn, Sony took half of Aiwa Co. and Hitachi bought 10% of Nippon Columbia Co., maker of Denon equipment.

In 1986, Mitsubishi Electric Corp. took a 2.5% stake in Akai Electric Co., a firm best known for its tape decks but now earning more from its video recorders. Mitsubishi now holds 7.7%.

Despite bleak business prospects, some industry analysts predict a new round of restructuring based on synergistic advantages to a variety of big firms in other industries.

For example, car makers Toyota Motor Corp., Honda Motor Co. and Mazda Motor Corp. could advance their drives into the luxury market by taking control of an upscale brand name such as Kenwood, TEAC or Nakamichi, the premier maker of audio-cassette recorders for the very wealthy, or snobbish, audiophile.

Japanese steelmakers, along with some second-tier electronics firms such as Kyocera Corp. and Casio Computer Co. are keen to expand into consumer electronics and might be similarly motivated, they said.

South Korean electronics companies such as Samsung Electronics Co. and Goldstar Co. might gain by acquiring a Japanese brand name and high technology.