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Epson hit hard by recession but will in future focus more on it's printer division

The global financial crisis and the yen's steep appreciation against the dollar and other major currencies have been a double blow to many Japanese manufacturers, particularly those that register substantial shares of their sales in overseas markets.

The Epson Group has been no exception. It has been forced to significantly revise its consolidated business projections for the year ending March 31, 2009, partly as a reflection of management's decision to book an additional extraordinary loss totaling ¥66.2 billion (+/-A$910m) as restructuring charges and impairment losses in its electronic devices business. This is expected to result in a net income loss of ¥100 billion (+/-A$1,37billion).

Seiko Epson Corp.'s most recent downward revision on March 11, 2009, was coupled with the announcement of its new long-term corporate vision called SE15 to take the company through to fiscal 2015.

The vision and the accompanying mid-range business plan for the first three years (fiscal 2009 to 2011) clearly identified the business sectors with growth potential on which Epson would focus its management resources. It also boldly announced that businesses facing a tough profitability scenario would face consolidation, following this up the next day with a statement that Epson had begun alliance talks with Sony Corporation for their small and medium-sized display businesses, including the possible transfer of a part of Epson's business assets to Sony.
Long-Range Vision

SE15 Long-Range Corporate Vision
The business downturn may turn out to have been a blessing in disguise by prompting Epson to embark on necessary restructuring moves more quickly and accelerating efforts to establish a more profitable and competitive corporate structure.

Under the SE15 Long-Range Corporate Vision, Epson will pursue innovations in "compact, energy-saving, high-precision technologies," refining and leveraging its core strengths to become "a community of robust businesses."

"We expect the recessionary business climate and the strong yen to continue through fiscal 2010," noted Epson President Minoru Usui at a Tokyo news conference in March 2009, adding, though, that the trend toward lower prices and eroding demand would probably persist regardless of business conditions.

The gist of the vision can be summed up in three points: "(1) Move ahead by focusing on areas in which we can leverage our strengths; (2) thoroughly reinforce the foundations of core businesses; and (3) use technological assets and selling power to create new products and establish new businesses."

In specific terms, management resources will be reinforced in four areas: (1) printers, (2) commercial and industrial sectors, (3) 3LCD projectors, and (4) quartz devices and sensors. "These are the areas in which we're strongly positioned," President Usui said. "We'll consolidate our number one positioning so we can withstand the erosion of prices in mass volume markets and leverage our technological andmarketing strengths to launch new products and expand business domains."

Financial targets under SE15 include return on sales of 10% or higher and return on equity of 10% or higher on a continuous basis. To establish a path to such growth and guide the company through the first three–perhaps most arduous–years of the long-term vision, Epson formulated the SE15 mid-range business plan (fiscal 2009 to 2011) to serve as an "initial roadmap."

In fiscal 2009, Epson aims to break even in ordinary income, carrying out the initial goals of SE15 to reinforce its business foundation. In fiscal 2010, it seeks to establish a sustainable profit-generating corporate structure, and in fiscal 2011, it hopes to establish new paths for growth in order to realize the SE15 vision.

Growth Potential
President Usui announces the SE15 vision at a press conference.
The mid-range business plan identifies three business pillars with particularly strong growth potential, the first being centered on the Micro Piezo technology in its world-leading inkjet printers as well as in commercial and industrial products.

"We'll be offering products that best match the needs of each market and expanding the range of applications," Usui said. "Our products targeted at users in the developed markets will feature a full range of functions, while those for emerging markets will emphasize cost competitiveness. We also project strong growth in the office segment with inkjet models that can outperform laser printers.

"We also hope to make further inroads into the commercial and industrial sectors, particularly the printing-on- demand market. And we're looking into meeting a broader range of business-system needs by building on our strong presence in the POS and dot-matrix markets, such as with color POS systems and label printers."

The second focus of the business plan is the 3LCD projector, a domain in which Epson is the world's leading manufacturer. "Our biggest strength is the fact that the core, high-temperature polysilicon TFT panels that go into ourprojectors are built in-house," Usui commented. "We'll be looking to maintain our top share of popularly priced models and boost our presence in the high-end market."

The third focus will be quartz devices, another area where Epson enjoys top market share, and in particular applications for these devices, such as sensors. On the same day that it issued its SE15 vision, Epson announced its decision to acquire ordinary shares of Epson Toyocom Corporation through a tender offer. Epson already holds approximately 67% of all shares issued by Epson Toyocom, a consolidated subsidiary that manufactures quartz devices. The offer is aimed at acquiring all Epson Toyocom shares and making the company a wholly owned subsidiary.

"Making Epson Toyocom a 100 percent subsidiary will help improve management responsiveness and efficiency," Usui noted, "and enable a closer alliance between our quartz devices and semiconductor businesses.

By fusing the technologies of these two operations, we can create higher value-added products and reinforce our presence in the sensor market through the development of module systems.

Epson Australia