OSAKA – Panasonic will hold more intangible assets than fixed assets for the first time by the end of this fiscal year as it shifts its investment focus from traditional manufacturing to areas such as software.
The Japanese company expects its intangible assets to increase by about 900 billion yen ($ 7.9 billion) during the fiscal year due to the September acquisition of US software company Blue Yonder , including goodwill, bringing the total to well over 1,000 billion yen. It had 1.06 trillion yen of fixed assets at the end of fiscal 2020.
Panasonic is one of many electronics companies, including its compatriot Sony Group, pursuing a leaner strategy.
The 770 billion yen Blue Yonder deal is indicative of this change. The company makes supply chain management software for manufacturers and logistics companies, with Starbucks and Renault among its customers, and derives about 70% of its revenue from subscriptions. The plan is to expand this business with additional features such as Panasonic cameras.
As it adds to its intangibles, Panasonic has also lost less profitable physical assets. It sold its automotive prismatic battery business to an equity subsidiary in April 2020, removing these fixed assets from its balance sheet. The company also ceases production of solar cells and liquid crystal display panels during this fiscal year.
These measures ensure that the scale will switch from tangible to intangible assets by the end of the year, according to Panasonic.
“With the changes in our business portfolio, our investment in intellectual property and acquisitions, rather than equipment, will increase in the future,” said Hirokazu Umeda, Chief Financial Officer.
While Yasuo Nakane of Mizuho Securities warns that the Blue Yonder deal may lead to “future goodwill impairment”, Umeda sees little danger of a major write-off. “Its income base is stable,” he said.
A similar transition is underway across the industry. The Sony group recorded 1.82 trillion yen in intangible assets, including goodwill, at the end of March, nearly double its 985.4 billion yen in fixed assets. The average share of intangible assets of 50 large electronics companies has been steadily increasing.
A 2017 report from the Japanese Ministry of Industry found that “sources of income have shifted from tangible assets … to intangible assets,” while noting that investments in the United States and Europe have moved more in that direction than ‘in Japan.
“While the United States and others have shifted their industrial structure to focus on software, traditional manufacturing remains strong in Japan, and there has been a strong tendency to invest in fixed assets,” the report said. .