Japan tech: the sun rises again

Olympus has fallen. So have Canon, Sharp and various other former giants.

Japanese consumer electronics once dominated. As recently as 2008, the country's companies sold two-fifths of the world's TVs, IHS Technology reckons. By last year, that proportion had halved as Korean and Chinese offerings became more popular.

The sector is waking up to the need to change. In part, this could be down to the economic restructuring promoted by prime minister Shinzo Abe. The example set by peers Sony and Casio may be more important, though. These two companies began restructuring early this decade, selling off subpar divisions such as TVs, printers and mobile phones and identifying new ways to grow. Casio now sells trendy watches and selfie cameras, enabling return on equity to quintuple between 2011 and 2013. It can now focus on cyclical, not structural, challenges. Sony still has work to do - it is dragging large and unprofitable electronics businesses such as TVs and mobile phones behind it. But it has sold others, and has niche successes. It leads the field in imaging semiconductors, for example. Nintendo, too, has announced that it will license its games for mobiles - a major strategic shift.

Panasonic, Pioneer and Toshiba have also exited bad businesses, but their outlooks are patchier. Still, a halo effect has pushed up share prices of any potential turnround candidate. Activist investors' successful demands for cash payouts have added to the excitement. Canon, Fujitsu and Panasonic have all beaten Japan's electronics sub-index this year as investors trawl for the next big win. Panasonic's shares have nearly trebled since November 2012.

Yet it is far from clear that these companies have sustainable growth strategies. Last month, for instance, a restructured Panasonic said it had over $8bn available for acquisitions. But $14bn of purchases since 2010, by Dealogic's count, have not helped much. Returns have been low and volatile in recent years. The prospect of more spending is not encouraging.

The market may be giving too much credit to companies that have not yet delivered on restructuring. At the bottom of the pile languishes Sharp, which cannot make money in the capital intensive and competitive display market. In response to reports that it might separate the display business, Sharp said it had not decided what to do. It needs to.

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