SIR Howard Stringer, the Welsh-born, American movie maven who headed Japan's consumer electronics behemoth Sony Corp, was once seen as the man who would save Japan's tottering consumer electronics industry.

Yet, following seven years of failed restructuring efforts, he was forced to step down in early April after Sony reported a whopping US$5.8 billion (RM18.05 billion) loss for the year ended March 2012. Indeed, on ­Aug 2,­ his successor and Sony's new CEO Kazuo Hirai revealed that things at the iconic Japanese firm were getting from bad to worse as it reported a net loss of ¥24.6 billion (RM969.9 million) for its April to June first fiscal quarter and forecast that it would barely be able to eke out a profit of US$254 million for the fiscal year ending March 2013, a target that many analysts now say looks fairly lofty.

If giant Sony looks bad, its arch-rival Sharp Corp is worse off. The Osaka-based firm announced on Aug 2 it would lose up to ¥250 billion in the current fiscal year following a ¥376 billion loss in the last fiscal year. Sony, Sharp and Panasonic Corp have lost more than US$20 billion over the past year. The Japanese consumer electronics industry has been haemorrhaging so badly that many global industry experts are wondering if the Japanese will remain major players in the sector over the next decade.

The global consumer electronics space was once dominated by Japanese giants such as Sony, Sharp, ­Panasonic (formerly Matsushita, which also owns brands like JVC, National and Quasar) as well as Toshiba, NEC, Sanyo, Mitsubishi, Fujitsu and others. In the 1970s and 1980s, they took market share from the former consumer electronics giants such as Europe's Philips, and American icons like General Electric and Zenith. The Japanese players dominated everything from home appliances such as refrigerators, microwave ovens and room air conditioners to TVs, audio equipment and, in Sony's case, cameras and game consoles.

Their dominance was so overwhelming that, at one time, the Netherlands' Philips was the only global electronics brand that could compete with them head-on.

Yet, even at its height, that dominance was far from complete.

From the outset, there were two categories where the Japanese firms failed to gain much traction outside their home market — PCs and cellphones — and it was their lack of size and global scale in these segments as well as the inability to keep on investing in research and development in the categories they did dominate, that have allowed South Korean and American firms like Samsung Electronics, LG Electronics and Apple to claw back to the top again.

One oft-cited reason for the fall of the Tokyo-based consumer electronics giants is their deteriorating balance sheet in the aftermath of Japan's lost decade, starting with the bursting of its economic bubble in the early 1990s. Saddled with heavy debts, a shrinking domestic market and a high yen that made it difficult for them to export their way out of trouble, analysts say the firms were forced to drastically cut down on R&D, which opened a new window of opportunity for their rivals.

Take the flat-screen TV market, for example. Sony, Toshiba, Panasonic and others were key players in large-size analogue televisions in the 1990s, but it was Samsung and LG that invested billions of dollars in new flat-screen plasma and LCD screen technologies. Ironically, the Japanese giants, once known for innovation, initially ignored the growing popularity of flat-screens. Then, when they hopped on the thin-screen bandwagon, they continued to back the parallel analogue TV business.

In the end, they were forced to buy TV panels from the South Korean companies at a premium, which meant wafer-thin margins or, in some cases, outright losses. Sony was even forced to form a joint venture with Samsung to make LCD panels to ensure a supply to keep its TV lines working. Others such as Panasonic continued to back the less-viable plasma TVs long after it had become clear that LCD was the superior technology for flat-screens and more than 80% of TVs sold used LCDs rather than plasma. And when LCD technology moved on to organic light-emitting diode (OLED) three years ago, the Japanese players stuck with older LCDs as South Korean firms flooded the market with thinner-screen, lighter TVs with sharper pictures.

Over the past decade, the Japanese consumer electronics sector has dramatically transformed. Many of the smaller, marginal electronics firms have fallen by the wayside or become niche players or suppliers. Panasonic acquired Sanyo in a rare Japanese consolidation more than two years ago. NEC, once the world's largest integrated electronics company, which made everything from chips to finished consumer products, is now primarily an industrial electronics firm.

You might still see Toshiba TVs, refrigerators and air conditioners as well as laptop PCs in electronics stores in Southeast Asia, but Toshiba, too, has been trimming its consumer portfolio to focus on the higher-margin industrial business. Six years ago, it purchased a 74% stake in US giant Westinghouse Electric, which itself had been a player in home electronics — including refrigerators and washing machines — but now focuses mainly on nuclear power plants.

Toshiba has since cut its stake in Westinghouse to 67% and is in the process of reducing it further to just 51%. Clearly, like the other troubled Japanese electronics firms, Toshiba needs to raise cash just to keep going. Fujitsu makes laptop PCs, tablets and even handsets for the Japanese market, and Mitsubishi Electric makes air conditioners, among other things. However, they are now increasingly seen as marginal players even in Japan.

The global TV market where Sony, Toshiba, Sharp and Panasonic once ruled the roost is also fast morphing. Over the past five years, no major TV maker has made money. Samsung claims its TV division will finally make a profit this year. Global demand for TVs peaked at 248 million units in 2010. Nomura Securities estimates that this year, just 243 million units will be sold worldwide, with LCD TVs making up more than 91% of the total sold, plasma over 5% and the rest being older analogue TVs.

The main reason for the slump is the slowdown in China, India and other emerging markets that have for the past five years been the main growth drivers, as well as the recession in Europe. Demand for TVs in China is now growing at below 9% annually, compared with 25% to 30% just a few years ago. China now accounts for around 22% of world TV sales. Sales of TVs fell 3% in Europe last year and most global industry forecasts project another 5% or so drop in the region this year.

Consumer electronics industry analysts say it is no longer about the lightest TV with the slimmest and largest screen, with the sharpest possible picture. While those attributes are important, TVs are becoming smarter. In the old days, consumers used them mainly to watch programming on two or three TV stations. The advent of cable and satellite TV changed that to a choice of literally dozens of channels on pay TV.

Now, people are using their TV as an interactive device of sorts. They are playing video games and watching streaming videos. They are also connecting their TV wirelessly to tablets or smartphones. Increasingly, the TV — once a dumb box — is becoming a smart interactive, connected entertainment device. Indeed, because most people can now do a lot more with the TV, they are willing to pay more for it.

Yet, the new TV revolution is as much a crisis as an opportunity for the consumer electronics giants. As much as the new uses for the TV mean more people will rush out to buy another set, existing players are seeing new entrants. Apple and Google have had set-top boxes for streaming video and TV available for a while now, and Apple is about to enter the TV business with its own smart TV offering by early next year. The new smart TVs won't be dumb boxes with remotes, but would be voice-operated and sensitive to hand motion. Want to switch on a music channel? Just bark the words "MTV". Want to switch channels? Motion as if you were flipping the pages of a book and it turns to the next channel.

Apple won't have the field to itself, however. Microsoft, Google and others are reportedly testing their own TV offerings. Aware of the big new shift, existing players like Samsung and Sony have already put their own smart TVs in the market, though most analysts say those will pale in comparison once the really smart TV sets hit the stores in the coming months.

While Sony has deeper issues — it is seen as an unfocused player that makes too many products and isn't good at any of them — Sharp had smartly hitched a ride on the next big thing. Earlier this year, it agreed to take Taiwan's Hon Hai Precision and its billionaire owner Terry Guo as shareholders. Guo and Hon Hai had agreed to inject about US$800 million into struggling Sharp as well as invest in one of its LCD factories. Hon Hai, which owns the Foxconn group, makes iPhones and iPads for Apple and is said to be the key producer of the new Apple smart TVs.

It was a deal made in heaven. To source LCD panels and technology for its cutting edge TVs, Hon Hai needed a partner, and beleaguered Sharp needed a cash injection. Unfortunately, Sharp's stock price has fallen 70% since and Hon Hai and Guo are unwilling to proceed with the deal. The groups are now renegotiating the terms of the deal, which will still require a big cash injection but at terms far more favourable to Hon Hai.

Clearly, in the post-PC era, the increasing convergence of devices and appliances has changed the game for consumer electronics players. Despite their early lead, Japanese electronics giants Sony and Sharp were overtaken not just because of the rising yen, but because they didn't invest as much in product design, innovation as well as developing a larger ecosystem of software and services.

The Sonys and Sharps of the world only have to look as far as Hewlett-Packard in the US to see what has gone wrong. The trick is either to refocus on just a handful of products where they have the competitive advantage, or seek long-term partnerships with players like Hon Hai, Apple, Google, Microsoft and Amazon that have a sticky ecosystem that keeps consumers glued to their products. Until then, the bloodletting in the business is unlikely to end.

Japan's global gadget icons such as Sony, Sharp and Panasonic need better-designed, more consumer-focused products, and not celebrity gaijin CEOs, to get them out of their current rut. — The Edge Singapore

This story appeared in The Edge Singapore on Aug 20, 2012.