Kenwood 2006 Annual Report Download - page 11

Growth strategy and profit structure reform of
the Car Electronics OEM Business
Growth strategy by the expansion of the Shanghai
Plant and the acquisition of new orders, and the
enhancement of cost reduction through the vertical
integration of Japanese and overseas plants
In August 2005, the Company completed the construction of its
new 11,000m2 building at the Shanghai Plant (Shanghai Kenwood
Electronics Co. Ltd.), one of the core manufacturing plants for car
electronics products. This move allowed the Company to double its
annual manufacturing capacity to one million car electronics units,
primarily DVD mechanisms, acquire new orders, and transfer
production from Japanese plant. As a result, the Company
succeeded in increasing its production capacity and strengthening
cost competitiveness.
In addition, the Company promoted vertical integration with the
Nagano Plant (Kenwood Nagano Corporation) regarding OEM
products and the Yamagata Plant (Kenwood Yamagata Corporation)
regarding consumer products to aim for further cost reduction.
Reforming the Home Electronics Business
Fixed costs reduction by reducing the size of
unprofitable overseas business and expansion of
profitable Japanese businesses
Due to increasingly fierce competition and lower prices in the home
theater market resulting from the rise of manufacturers in emerging
countries, the Company conducted its strategy change that reduces
its business size primarily in the overseas home theater market in the
fiscal year ended March 2005. As a result, fixed costs decreased and
the profit structure of the Home Electronics business significantly
improved.
The Company took advantage of business opportunities
generated by the rising popularity of new digital media content and
a recovery in the demand for high-class audio products, and
promoted new product strategies utilizing its high quality sound
technologies and the proliferation of digital media content, in order
to enhance the Japanese pure audio and portable audio businesses.
However, this business was not able to make any profit due to the
effects of losses incurred as a result of the strategy change, which
partially affected the first half of the fiscal year, and rapid changes in
the digital audio market, although profitability significantly
improved.
Structural reforms of the US sales system
In the US, the Company shut down those firms affiliated with outlet
sales operations because the Company judged them to be
non-viable as business reforms continued. In June 2005, the
Company established the Kenwood Americas Headquarters headed
by the US sales subsidiary, and has begun full-fledged
implementation of strategies by focusing on strengthening its
business in the US and Canada, and expanding sales in emerging
markets such as Mexico and other Central and South American
countries.
With the effects of improved revenue including increased sales of
Communications Equipment (wireless radio equipment) business,
the revenue of the US sales subsidiary significantly increased, and
the gain on reversal of allowance for investment losses on
subsidiaries on a non-consolidated basis was significantly larger than
expected.
2005/32004/32003/3
Net Sales
Growth of CE OEM Business (Image)
2006/3
Net Sales Operating Profit
JPY in Billion
2004/3 2005/3 2006/3
Structural Reform of HE Business
30
0
-2
Kenwood Corporation 11 Annual Report 2006