Written by Abdul Davids – Head of Research

In 1918, at the end of the First World War, Konosuke Matsushita founded the Matsushita Electric Housewares Manufacturing Works (Matsushita Corporation) – with a two-way socket and an attachment plug for light bulbs as its only inventions. Spawned from these humble beginnings, the business – now known as Panasonic – has grown considerably, generating US$66 billion per annum in revenue and employing 240 000 people across the world.

We unpack Matsushita’s journey with Panasonic through its transformation from a household appliance manufacturer to supply chain management software services provider and key supplier of electric vehicle batteries to Tesla.

Founding father of corporate social responsibility
Matsushita shaped the company’s culture and business practices by focusing on corporate social responsibility, well before businesses formally began paying attention to environmental social governance issues. He believed that companies should focus on developing products that make life easier for people. In 1965, he pioneered the five-day work week, with weekends set aside for a day of study and a day of rest.

Panasonic’s motto of “a better life, a better world” encapsulates this philosophy and continues to embrace it by developing products that offer convenience, while generating healthy returns for shareholders.

Innovation sparks evolution
The company’s relentless focus on new product development has seen the brand evolve its range over the years, from dynamo batteries that power bicycle lights to household appliances and, more recently, batteries for electric vehicles. As illustrated below, Panasonic’s introduction of home appliances such as washing machines, TVs and refrigerators in the 1950s, launched the idea of modern conveniences. This massively improved the quality of life for many households. In the same period, the company started manufacturing audio-visual products – branding audio speakers and lamps as “PanaSonic” (meaning “universal sound”) for markets outside of Japan – marking the first time the new name was used.

Furthermore, Panasonic became the majority shareholder in the Japan Victor Company (JVC) in 1953. JVC pioneered the VHS front-loading cassette home recording system, which became the dominant video recording and playback system that launched the global video rental industry.

From appliances to lifestyle solutions
The business is set to undergo a restructuring (April 2022) aimed at shifting the focus to operations, including software services. This should strengthen Panasonic’s competitive advantage across all five current segments. Panasonic Corporation will serve as a holding company to seven new operations businesses, one of which will be responsible for specialised functions and will fall under the umbrella of the holding company. In time, the seven businesses will be rationalised to five, with Panasonic Connect housing the group’s supply chain management (SCM) software businesses, including the recently acquired Blue Yonder business. The charts below indicate the new holding company structure and the five operating companies that form part of the group, unpacked as follows:

The Lifestyle division accounts for just less than 50% of group sales and profits. It is Panasonic’s largest and most mature division, housing the group’s legacy appliance businesses including home appliances, lighting, energy systems and heating, and ventilation and air conditioning (HVAC).

The Automotive division manufactures and supplies infotainment systems and related audio visual and electronic equipment to the automotive industry. Contributions to revenue are similar to that of the Industry division, although it generates substantially lower profits as most of the automotive divisions’ customers are large original equipment manufacturers, such as Toyota and BMW. Panasonic is investing in new technologies and products that can enable autonomous drive capabilities in passenger cars, with a key focus area being electric vehicles. This should boost profits in this division.

Panasonic’s Industry division produces electronic components and devices for manufacturing and industrial customers. Using a blend of polymers and high-end metals like aluminium, this business produces a range of niche products for various industrial applications.

The Energy division develops and manufactures a range of batteries – from dry-cell to NMC (Nickel, Manganese and Cobalt) to lithium-ion batteries and energy storage systems. Panasonic has been associated with battery products for over a century, with its development of rechargeable batteries in 1935 that revolutionised battery and energy storage technology. Currently, Panasonic’s lithium-ion batteries used in electric vehicles enjoy a dominant global market share and their joint venture arrangement with Tesla makes them the leading battery supplier to the company.

Panasonic Connect is a new division created to house the group’s recently acquired Blue Yonder business. It is focussed on providing software and services for the aviation, manufacturing and logistics industries. Since inception, Panasonic has been an appliance/hardware manufacturer and distributor, but subsequently (in 2019) has taken the strategic decision to sell off non-core assets and focus on growing its software and services businesses. The Blue Yonder acquisition marks the beginning of the transition away from lower margin (and lower-rated) appliance/hardware manufacturing and supply to a software and solutions-based service offering for industrial customers.

Overall, Panasonic is geographically diversified, with its home market, Japan, accounting for less than half the group’s revenues in the 2022 financial year. The Americas and Asia (including China) contributed around 44% of Panasonic’s sales in 2021.

BeYond(er) appliances
In May 2021, Panasonic acquired a majority (80%) interest in Blue Yonder, a US-based SCM company (a cooperative joint venture was already in place, whereby Panasonic already owned 20%). Blue Yonder’s SCM software supports client revenue growth by reducing costs and saving time on various business processes through enhanced product or service visibility via e-commerce platforms.

Founded in 1985 as JDA Software in Scottsdale, Arizona, Blue Yonder is presently the world’s largest supply chain software company. Corporate customers include Microsoft and Intel (software and IT), Samsung and Sony (electronics), and Nike and 7-Eleven (retail). In addition to growing the Blue Yonder SCM business, Panasonic believes that it can save at least 100 billion yen in costs by applying Blue Yonder’s software to its own businesses. The big opportunity for Blue Yonder is, however, the global supply chain management market. Research company Gartner estimates that the global total addressable market for SCM software will expand from US$17.4 billion in 2021 to US$30 billion in 2025, indicating a growth of 11% or more on an annual basis through to 2025 (left chart below).

Primed for better returns
The right chart above compares Panasonics performance to the TOPIX¹ Index in Japan over the last 10 years. A 100-yen investment in Panasonic 10 years ago would only be worth 175 yen today, versus a similar investment in the TOPIX being worth about 261 yen. Panasonic’s conglomerate structure and high concentration of appliance sales in Japan (that has shown pedestrian growth over the last decade) are key reasons for the underperformance. It is trading at an almost 25% discount to the TOPIX, therefore is currently cheaper than most competitors, despite this and exposure to high growth sectors like EV batteries and the potential of substantial earnings growth from its Blue Yonder business. The company’s transition from a sedate conglomerate to a focussed holding company of five exciting businesses supplying both products and software services to customers globally, should result in a notably improved market rating. In addition, it should deliver strong earnings growth over the next 10 years.

¹_{Price earnings ratio – a measure of value.}