But the news may have bigger implications for Japan’s entire economy, as the country’s exports continue to take a beating from sagging worldwide demand for its products.

Japanese exports plunged 26.7% in November from a year ago. Shipments to the U.S. slid an unprecedented 34%, Japan’s Finance Ministry said. A strong yen, which makes Japanese goods more expensive, combined with deflated consumer spending, is hammering Japanese exporters.

Toyota will post a $1.7 billion (150 billion yen) loss in the year through March, it said in a statement, scrapping a previous forecast of a $6.6 billion. The last time Toyota posted an operating loss was in the year ended March 1938, spokesman Hideaki Homma told Bloomberg News.

“The environment we’re in is extremely tough,” President Katsuaki Watanabe told reporters in Nagoya. “We’re facing an unprecedented emergency situation. Unfortunately, we can’t see the bottom.”

U.S. auto sales are down 16% this year, led by declines of 28% for Chrysler LLC, 22% for General Motors Corp. (GM) and 19% for Ford Motor Co. (F), Bloomberg News reported. The three U.S. automakers will close about 59 factories over the next month as they struggle to avoid bankruptcy.

“It is difficult to envision any swift recovery from the present damage in the U.S., Toyota’s core market, and we anticipate increasing cuts in overseas local production,” wrote Barclays Capital (BCS) analyst Tsuyoshi Mochimaru in a research note on Dec. 19, according to MarketWatch.

Compounding the demand problem is a surging yen, which erodes overseas profits for Japanese exporters. The yen has gained 25% against the dollar this year.

But Toyota’s problems may just be the tip of the iceberg for Japan’s economy. The November export plunge was the biggest drop on record, as global demand for cars and electronics collapsed.

Earlier this month, Sony Corp. (ADR: SNE) announced it was cutting 8,000 jobs, or about 4% of its worldwide workforce. Sony recently blamed a 72% profit plunge in the third quarter partially on a resurgent yen. Electronics company Sanyo Electric Co. (OTC: SANYY), facing tough market conditions around the globe, agreed Friday to sell itself to rival Panasonic Corp. (PC).

“Japan’s economy has never weaned itself off of the overbearing reliance on exports, and especially to the U.S.,” said Kirby Daley, senior strategist and head of capital introductions at Newedge Group. “Japan did nothing to prepare itself” for the collapse in demand from abroad, he told Bloomberg News.

Like the U.S. Federal Reserve, The Bank of Japan has been hacking away at interest rates in an attempt to stanch the economic bleeding. Japan’s central bank lowered rates to 0.1% on Friday.  But the rate cuts haven’t been enough to kickstart the Japanese economy, as the yen has remained stubbornly strong.

Source: Toyota’s First Operating Loss Since 1938 Spells Trouble for Japanese Economy

The merger would create Japan’s second-largest electronics manufacturer behind Hitatchi Ltd. (ADR:HIT), as Panasonic is the world’s No. 1 plasma TV maker and Sanyo is one of the world’s largest rechargeable battery makers, Reuters reported.

Should the deal clear regulators, Panasonic said one of its intentions is restructuring both companies. It targeted three “primary synergy” areas:

• Solar: The combined company plans to expand its silicon solar cells and batteries and accelerate development and commercialization of next-generation solar cells. Panasonic expects “a significant increase” in solar sector sales.

• Rechargeable Batteries: In addition to fusing Sanyo’s lithium-ion rechargeable batteries business with Panasonic’s black box technology, the companies plan to make “active investments” in batteries for hybrid electric vehicles and electric vehicles. More practically, the deal would nearly quadruple Panasonic’s share of the rechargeable-battery market.

• Financial and Business Position: Panasonic believes the combined enterprise will produce cost cuts in procurement and logistics.

“Panasonic and Sanyo recognize that existing strategies must not only be accelerated, but also that drastic action is now required for further strengthening initiatives to achieve potential revenue and profit growth in the global economic recession stemming from the financial crisis as well as in the midst of intensified global competition,” Panasonic said in a statement.

The company added: “Combining the accumulated technologies and manufacturing knowledge of both companies, Panasonic and Sanyo believe that together they will evolve into a corporate group which will be highly admired globally by enhancing the quality of life for the people worldwide and becoming a business entity coexisting in harmony with the global environment.”

The deal cleared a major hurdle Thursday when Goldman Sachs Group Inc. (GS) agreed to share its 29% in Sanyo to Panasonic for at least $6.4 billion, Reuters reported. Goldman had previously rejected two other offers from Panasonic.

“A merger would supply much-needed funds for Sanyo to maintain its position in the solar-battery market,” Yuuki Sakurai, general manager of investment planning at Tokyo’s Fukoku Mutual Life Insurance Co., told Bloomberg. “It’s difficult to imagine Sanyo succeeding by going it alone, and in that sense the offer is progress.”

Sanyo was founded by Toshio Iue, who in 1946, quit his job at Panasonic’s former entity Matsushita Electric Industrial Co. to form Sanyo the following year, Bloomberg reported.

Source: Panasonic Offers $9 Billion for Controlling Stake in Sanyo

• FedEx Corp. (FDX) mixed bad news with good in its latest quarterly report. After posting a profit for its second fiscal quarter, the package delivery giant also said it’s suspending pension contributions, freezing new hires, cutting its CEO’s pay by 20% in order to cut $800 million by the end of its fiscal 2010, Reuters reported.

• Wal-Mart Inc. (WMT) store representatives told Bloomberg that the world’s largest retailer would begin selling Apple Inc.’s (APPL) iPhones by the end of the year. The move is seen as positive for both companies, as it gives Wal-Mart a hot new item and Apple a gigantic new sales outlook.

• General Motors Corp. (GM) denied a report yesterday (Thursday) that the company reopened merger talks with Chrysler LLC. The report first appeared in The Wall Street Journal. “We have had no talks with them since we announced during our third-quarter earnings call that the talks had been suspended,” GM spokesman Tony Cervone said, Reuters reported.

• Credit card firm Discovery Financial Services (DFS) added itself to the list of companies applying to become a bank holding company, thus making it eligible for federal TARP money. The company also reported a $432 million profit in its fiscal fourth-quarter, up from a $56 million loss the previous year, MarketWatch reported.

• The Labor Department said yesterday (Thursday) that the number of filings for initial jobless benefits fell to a seasonally adjusted 554,000 from an upwardly revised figure of 575,000 the previous week. Still, claims remain near the highest level since 1982.

• Goldman Sachs Group Inc. (GS) has agreed to share its 29% in Sanyo Electric Co. Ltd. (OTC: SANYY) to Panasonic Corp. (ADR: PC) for at least $6.4 billion, Reuters reported. The purchase will make Panasonic Japan’s No. 2 electronics manufacturer after Hitachi Ltd with $120 billion in annual sales. Goldman had previously rejected two other offers from Panasonic.

• The U.S. economy will begin to rebound late next year or early in 2010, IMF Managing Director Dominique Strauss-Kahn told Spanish newspaper Expansion. He based this view on the likelihood that the housing market will soon bottom and demand will follow the recent wave of fiscal stimuli. Though he added: “We recognize, however that the possibility of a recovery is plagued with uncertainty.”

• Carnival Corp. (CCL), the world’s largest cruise operator, reported a 4% rise in fourth-quarter earnings yesterday (Thursday), but lowered its 2009 outlook as consumers will likely cancel or delay vacations for the next year. The company’s quarterly revenue rose 6% to $3.3 billion.

Source: Global Investing Roundups Friday, December 19th, 2008

Its cost-cutting operation only applies to its electronics division, and further plans include curbing investments by 30% and ceasing production at two overseas manufacturing sites.

The job cuts are nearly split down the middle between full-time and part-time/seasonal employees, Bloomberg reported. And the job cuts don’t include the number of employees reassigned to another position.

The 8,000 full-time jobs amount to about 5% of Sony’s workforce, the company said in a statement.

The job cuts are the largest single slash by a Japanese company since the credit crunch began wringing capital from companies around the world.

Sony, the world’s second-largest consumer electronics maker, said it plans to outline the impact of these cutbacks its third quarter report in January.

“The reason for this move is the deterioration of the economy, which was much larger than we expected,” Senior Vice President Naofumi Hara told Bloomberg.

But that’s not exactly the whole story.

Sony faces multiple major competitors for each of its strongest electronics products – Game consoles, MP3 players, portable devices, DVD players, high-definition televisions, big screen, computers, and cameras & camcorders.

Most notably, Sony’s most recent and popular game console Playstation 3 is the only thing that can be considered a dud in the white-hot (and highly investable) video game industry.

Instead, the Nintendo’s Wii game console is celebrating its second-consecutive holiday season as the hot item. In fact, demand for it never cooled throughout the year.

As of June 2008, Nintendo Wii sales have doubled that of Sony’s flagship console – selling 29.6 million units worldwide compared with 14.4 million PS3 units sold.

Peer Review

The global financial rout has severely blunted retail electronics sales, despite wide acceptance that this is a promising growth industry.

The fact is that domestic and corporate budgets have been slashed, and the extra coin that’d normally buy new high-tech gadgets is instead being used for more basic needs.

That’s why Sony rivals Panasonic Corp. (PC) and Sanyo Electric Co., Ltd. (OTC:SANYY) are hashing out a buyout plan that – if approved by shareholders and regulators – would cement Panasonic’s status as a global electronics leader.

Sanyo’s wide range of products could buoy the company, but only if it had the size and capital to keep its businesses running.

Panasonic – on the other hand – desperately needs to expand its product line and is sitting on a $10 billion cash reserve.

Goldman Sachs Group (GS) is a major Sanyo shareholder and has rejected Panasonic’s first two bids so far, the second an $8.6 billion offer, The Financial Times reported.

Source: Facing Falling Demand, Sony Lops Off 16,000 Jobs

Sanyo said it started procuring the display panels from Sharp in April, and would use them for the LCD TVs it’s producing for the North American market. And while Sanyo said it will keep buying LCD panels from other suppliers, too, the company also said that it’s in talks with Sharp about a program in which the two would jointly develop a line of kitchen appliances.

With its consumer-electronics business struggling, Sanyo has refocused itself strategically, betting its future on solar cells and rechargeable batteries, Reuters reported.

“We hope to expand our business by having a mutually complementary relationship with Sharp,” Sanyo spokeswoman Yuko Hosaka told Reuters. “Sharp’s strength in LCD [panels] is part of that.”

Sanyo sold about 1 million LCD TVs in North America in the business year that ended March 31.

Sharp’s Growing List of LCD Disciples

Sharp, which markets the Aquos line of LCD TVs, is the world’s third-largest maker of the flat-panel televisions, trailing South Korea’s Samsung Electronics Co. Ltd. (PINK: SSNLF) and Japanese consumer-electronics giant Sony Corp. (ADR: SNE). But Sharp has been trying to boost its market position and establish a consistent market for its LCD panels among rival flat-panel TV producers even as it invests to elevate its own productive capacity, Reuters reported.

As Money Morning reported back in February, Sony agreed to take a one-third stake in a $3.5 billion LCD plant that Sharp is building in Japan to meet the soaring worldwide demand for flat-screen television sets.

It plans to transform the LCD plant – which would be the world’s largest – into a joint venture: The Osaka-based Sharp will take a 66% stake, while Sony will take the remaining 34%.

While the companies would not say how much Sony would invest for its stake, Japan’s Nikkei newspaper said that Sony agreed to pony up $926 million, Bloomberg News reported. The factory will start production by March 2010.

While Samsung, Sony and Sharp rank one, two and three on the list of the world’s largest makers of LCD TVs, Japan’s Matsushita Electric Industrial Co. Ltd. – maker of the Panasonic brand – controls one-third of the plasma TV market.

Sanyo joins Sony, Toshiba Corp. (OTC: TOSBF) and Pioneer Corp (PINK: PNCOF) as companies that have all said that they plan to buy LCD panels from Sharp. But the Sony-Sharp alliance is an especially aggressive example of the linkups taking place among Japan’s flat-panel TV producers.

If it seems odd to have competitors buying and selling such a key component as an LCD screen, consider the challenges Sharp and its rivals face:

• They need to have a big-enough supply of the liquid-crystal display (LCD) panels to meet the accelerating demand.
• But these companies also need to keep their capital investments low at a time when flat panel displays are becoming a commodity, meaning the actual component prices can be expected to undergo the same steep declines as computer memory chips or memory drives.

In the face of burgeoning demand and tight supplies for LCD panels, companies are choosing different routes to fill their needs. Late last year, Toshiba decided to buy LCD panels from Sharp. But earlier this month, Panasonic-maker Matsushita said it would spend $2.8 billion to build an LCD plant of its own.

“Sony needed an extra source of panels because the large-size LCD TV market is growing faster than it had expected. As Sony expands TV production, it is natural to seek to diversify panel sources,” Park Hyun, an analyst at Prudential Investment & Securities, said during a recent interview. “Sony is likely to continue the partnership with Samsung … therefore Sony’s diversification strategy won’t have a negative implication for
the alliance with Samsung.”

For Sharp, the linkup with Sony serves as a hedge at a time when aggressive industry investments in panel-production capacity is boosting worries about a supply glut down the road.

“The problem will be 2010 and 2011,” said Shinko Securities Co. Ltd. (PINK: SKSTF) analyst Hideki Watanabe. “Just when TV demand is likely peaking, Sharp’s 10th-generation plant will come on-stream, and so will Matsushita’s new factory [causing the potential glut. But this] deal gives Sharp good risk hedging.”

The new Sharp-Sony factory would utilize the so-called “10th-generation” glass substrates, which can yield more panels than earlier-generation, smaller glass substrates, improving production efficiency and helping both Sharp and Sony offer flat-panel TVs at competitive market prices.

The new factory will produce LCD screens that have a diagonal reach of as much as 60 inches. Sony will receive a third of the factory’s output, with the rest going to Sharp. Initially, the monthly output will be 36,000 glass substrates, although the ultimate monthly output will reach 72,000 glass substrates.

The substrates are the output from which the flat panels can be cut.

Besides the flat-TV panels, the factory will also make so-called “LCD Modules,” which are flat-panel displays equipped with such components as a backlight unit and LCD driver chips.

“For Sharp, this is a positive step since it means a major buyer that would keep the 10th-generation factory busy,” Kazuharu Miura, a Daiwa Institute of Research analyst, told Reuters.

The venture reduces Sony’s reliance on Samsung – currently its main supplier – at a time when LCD TV sales are projected to rise 29% this year, easily outpacing demand growth for rivaling plasma-based TV sets. Both UBS AG (UBS) and Lehman Brothers Holdings Inc. (LEH) predict that the LCD shortage will persist throughout the year.

Worldwide sales of LCD TV are expected to reach 155 million units by 2012, double the 74.8 million sold in 2007, predicts the Japan Electronics and Information Technology Association. Demand for plasma TVs will likely reach 25 million units in 2012, 119% more than the 11.4 million sold last year, the JEITA said.

Sony is expecting to sell 10 million of its Bravia LCD TVs in the current fiscal year, which ends March 31. The suggested list price of the TVs range from about $500 to $1,600, according to the Sony Web site.

The company also has a second LCD joint venture – this one with Samsung – known as S-LCD.