Simon Baker (Program Director)

July’s Olympic Games would seem the ideal time for Japan to launch 5G services, even if it would be over a year after the technology went commercial in South Korea.

But if Japan’s most famous electronics name, Sony, does not slow its current downward trend in smartphone sales, it will be out of the business by then under its own brand.

Sony’s domestic share has been falling by around two-fifths year on year for four quarters in a row. Abroad, its demise is even more rapid and it has withdrawn from many markets including the US (see the accompanying chart with data from IDC’s Worldwide Quarterly Mobile Phone Tracker).

Shareholders have been saying for some time that Sony should get out of the business, as it is losing so much money — $879 million in the smartphone division in the financial year to March 2019. That’s over $130 per smartphone sold.

But Sony’s new head, Kenichiro Yoshida, has so far refused, saying the smartphone unit is “indispensable.”

Taking Losses to Stay in 5G

The main reason, he quotes, is 5G. That is the conundrum that Japanese consumer electronics now finds itself in. To stay in the game in 5G, Sony will need to continue to lose money.

Compare that with Japan’s industrial rivals. In South Korea Samsung is using the domestic market as a means to get ahead in 5G smartphones globally by dominating the premium market. It has done just that, and the home market is already 50% 5G.

China is beginning to roll out 5G in a big way, and the Chinese phone brands are moving to meet the challenge to bring 5G smartphone prices down quickly, which will give them an impetus within a year or two in other parts of the world.

It should really be plain sailing for Japan getting 5G going. Japanese buyers like to buy home-made products, and they buy expensive phones, even if there was a drop in top-end Android sales in 2018 following a ban on bundling phones with their use in postpaid arrangements.

Japan covers a small area, with a high population density in its cities, making it well suited to the rollout even of mm wave infrastructure — similar to South Korea on both points.

Local Players Are Splintered and Lack Focus

None of the other Japanese players look well positioned to take a dynamic role in local 5G, however. Sharp, currently the largest local Android brand, is no longer Japanese-controlled — it only sells phones in Japan and since 2016 it has been owned by Hon Hai, the enormous Taiwan-based manufacturing house which makes many iPhones.

Of the other domestic brands, Fujitsu and Kyocera are big industrial groups typically present across a range of products but without a commanding presence in any one — including phones. The only phone player beyond Sony to have a consumer electronics focus was Panasonic, once a force in the global phone market, but now it hangs in there in the local market with just a marginal share.

Sony Makes Money as a Camera Module Supplier

For Sony its decline as a smartphone brand is bittersweet. It lost its place by being undercut by Chinese brands abroad and Sharp at home, but also very arguably through a lot of management failures, with a poorly delineated smartphone portfolio and lack of effective marketing.

It still has technical expertise and top class manufacturing, and is profiting from the current arms race in smartphones towards more high-performance cameras. Bloomberg reported in December that Sony cannot keep up with global demand for its camera modules, in which it has around a 50% global share by value.

Buoyed by its success in components and in its semiconductor division in total, and with the PlayStation, Sony may continue to take the losses on phones if it can fend off its shareholders. As with the other players in the local industry, being part of big industrial groups means businesses can muddle on, even when some radical reorganization and consolidation is called for.

That sort of reorganization is rare in industry in Japan, which is settling into a sort of comfortable middle age, no longer ambitious in many export markets. For the younger generation that may be no bad thing, as they face less of the conformity and the sacrifices of the “salaryman” generation, leaving those to China’s nine-to-nine, six-days-a-week work norms.

But with an ageing society Japan needs to think of how to make ends meet too, and its current economic malaise is held up around Asia as an example of what everyone else should strive to avoid.

Tech moves fast and so does the process of “creative destruction” — Japan cannot afford to rest on its manufacturing laurels, remarkable though those may be. The country has taken a heavy hit from the rise of the smartphone and the corresponding decline in sales of cheaper compact cameras. According to CIPA, a local industry group, digital camera shipments by its members dropped by 84% between 2010 and 2018.

Japanese Industry Needs to Keep Up

For a country as focused on high-tech manufacturing as Japan, 5G may prove to be an important element in its future in industrial technologies. A failure to get going might, for instance, have negative repercussions for Japan’s role in robotics, in which it is currently the global leader in export sales; the low latency of 5G signals will be crucial for many robotics applications. It could also affect the place of the Japanese automotive industry, a major exporter, in connected vehicles.

On the other side of the 5G equation, however, Japanese mobile operators are keen to get on now with deployment, despite the slow start. Last autumn, both DoCoMo and SoftBank’s network Yes! announced they would bring forward their launch of service up to this year. SoftBank said it would accelerate its rollout by two years, targeting 60% population coverage by 2023. DoCoMo, meanwhile, is targeting 10,000 base stations by spring 2021.

Here the interconnections of the big industrial groups can bring some advantage; Fujitsu has links with the operator DoCoMo, and they can be expected to work together on 5G. Kyocera intends to ship midlevel 5G phones for operator KDDI. And soon NEC will enter the 5G infrastructure market, and SoftBank will install its equipment. With the government not keen on letting Huawei have a role, Ericsson, Nokia and Samsung will provide the rest of the network equipment.

Foreign Brands See a Chink in Once-Closed-Off Market

So Japan will get 5G all right before the Olympic Games kick off in Tokyo in July. But will it be to the advantage of foreign smartphone brands? Painfully for a country with top notch consumer technology, the success of 5G may imply letting foreign companies take a bigger part of the phone market. Apple has long been very successful in the country, a rare example of the Japanese preferring foreign products, and holds close to half the smartphone market. The timing of the Japanese 5G launch will be fortuitous as it is just a few months before the expected arrival of the first 5G iPhones this autumn.

Apple to the 5G rescue?

In Android, key foreign brands have some of their lowest shares anywhere. Samsung has less than 8%. Smartphones from Huawei and OPPO are widely available, but their sales are not significant to date.

Xiaomi recently announced it would enter the market, and the Chinese New Wave brands could gain share.

The beleaguered Japanese players are going to have to fight to hold their own.

 

 

If you want to learn more about this topic or have any questions, please contact Simon Baker, Akira Sugawara, or Kazuko Ichikawa or head over to https://uk.idc.com and drop your details in the form on the top right.

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