March 3, 2008 / 7:47 AM / 11 years ago

Mitsubishi Electric to exit mobile phone ops

TOKYO (Reuters) - Mitsubishi Electric Corp said it planned to exit its loss-making mobile phone business, becoming the latest Japanese electronics maker to withdraw from a market dominated by overseas giants such as Nokia.

In the face of tough competition from Nokia, Samsung Electronics Co Ltd and other global suppliers that enjoy economies of scale, many Japanese cellphone makers have withdrawn to the domestic market in recent years.

Sanyo Electric Co Ltd said in January that it would sell its loss-making cellphone business to Kyocera Corp for 40-50 billion yen.

“This is a logical step for Mitsubishi Electric after having been unable to launch a hit model for a while,” IDC analyst Michito Kimura said. “But the withdrawal of these two Japanese cellphone makers is not going to make things better for those still in the industry.”

With mobile phone demand stagnant at home, more Japanese makers are likely to pull out or merge, analysts said.

Mobile phone service operators such as NTT DoCoMo Inc are cutting subsidies to retailers to keep cellphone prices low and are instead reducing their monthly rates, discouraging handset users from replacing their handsets frequently.

SIZE MATTERS

Mitsubishi Electric said on Monday it expected a one-off loss of about 17 billion yen ($164 million) on a pretax level for the year ending on March 31 due to the withdrawal. The Tokyo-based company said, however, that the loss is likely to be offset by improved operational efficiency in other businesses.

Shares in Mitsubishi Electric closed down 4.5 percent at 931 yen after the announcement, in line with the Nikkei average.

Mitsubishi Electric, which earns the bulk of its profit from factory automation and auto components businesses, expects 100 billion yen in sales from its cellphone operations in the current business year, or 2.5 percent of its group revenue.

It forecast mobile phone shipments of 2.1 million units for the year. That would be less than 0.2 percent of global mobile phone shipments for calendar 2007, according to data from research firm IDC.

“Companies like Nokia are selling hundreds of millions of mobile phones, while Japanese companies are fighting each other in a market with annual demand of 45 million units or so,” Daiwa Institute of Research analyst Kazuharu Miura said.

“No (Japanese) companies are well positioned for survival.”

CELLPHONE LEGACY

Mitsubishi Electric, which has already withdrawn from overseas cellphone markets, plans to cease shipments to NTT DoCoMo, its sole mobile phone customer, by September.

DoCoMo’s other suppliers include NEC Corp, Matsushita Electric Industrial Co, LG Electronics Inc, Nokia, Sharp Corp, Sony Ericsson, Fujitsu Ltd, Sanyo and Motorola Inc.

Motorola, which has been losing market share to rivals such as Nokia and Samsung having been unable to deliver a strong successor to its Razr phone, said in January it was considering separating its mobile devices business from its other units.

Mitsubishi Electric plans to utilize its mobile phone technologies in related telecommunications businesses such as cellphone infrastructure operations and components used in advanced fiber optic-based networks.

Nippon Telegraph and Telephone Corp’s two regional units are building a next-generation network that will enable smooth transmission of movies, music and other “heavy” content, in a bid to secure a new growth driver. Related investments by NTT East and NTT West will nearly quadruple in the new business year starting in April to 115 billion yen.

Additional reporting by Nathan Layne; Editing by Hugh Lawson

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