Smaller but smarter and more perfectly formed
The secret is to eschew convention, the mobile phone chief tells Alexandra Harney
Published: July 15 2001 17:57GMT | Last Updated: July 15 2001 19:55GMT
In an industry where most companies take "big is better" as gospel, Kyocera is an atheist. Sony, Ericsson, NEC, Philips and other mobile-phone manufacturers have been frantically seeking alliances to rival Nokia, the Finnish handset leader. The Japanese company has kept quietly out of the fray.
"You don't have to be as big as Nokia to make money," Kyocera's sharp- tongued, broad-shouldered president said recently. "Business divisions should not be big for the sake of being big. They should be focused on making a profit."
While this may sound obvious, it is still heresy in parts of Japanese business. In the boom years, market share was the measure of success for most companies. In more recent times many of Mr Nishiguchi's peers still prefer to discuss employment before profits.
So far, Mr Nishiguchi's strategy has paid off. With sales of Y1,285bn ($10.4bn) and net profits of Y219.5bn last year, Kyocera was the world leader in code division multiple access (CDMA), a complex technology that will form the basis for the next generation of mobile phones.
Last year, Kyocera - which also makes optical equipment, digital cameras and copy machines - increased mobile phone sales from 4.7m to 11m units, partly through its acquisition of the handset business of Qualcomm of the US. It currently earns a 10 per cent margin on its handsets in Japan and intends to double this within five years.
Kyocera is a rare example of a Japanese company that is successfully leveraging its technological assets to produce smart, value-added products that make money for shareholders. It is therefore a perennial favourite of analysts and fund managers, and its popularity has shielded its share price from the wild swings seen at other technology companies in recent months.
Kazuo Inamori, the Zen monk who is Kyocera's founder, is the company's most famous face. But much of the credit for Kyocera's recent success goes to Mr Nishiguchi, a 25-year company veteran. After several humiliating setbacks such as Kyocera's Y12.2bn write-off of its investment in Iridium, the failed satellite company, last year, Mr Nishiguchi has refocused the company's priorities: he has enhanced disclosure and expanded production in China.
The strategy is based on an unusually frank assessment of Kyocera's - and Japan's - competitive advantages. "In the 1980s, everyone believed Japan's manufacturing industry was wonderful . . . the US manufacturing sector had lost its nerve and visited Japan to see Toyota Motor and other companies. They were wise: they took the fundamentals of Japanese manufacturers, added computers and created the next generation of manufacturing technology. Now, with the help of computers, Mexicans and Americans can make things better than the Japanese," says Mr Nishiguchi.
"Japan uses its labour force's intelligence, while in the US, production-line workers may not even have graduated from junior high school. The US manufacturing system is portable but Japan's depends entirely on its [domestic] labour force."
These beliefs have led Mr Nishiguchi to what some consider heretical management policies. Even as telecommunications companies such as Ericsson, Sony and Alcatel subcontract a growing proportion of their production, Kyocera intends to do the job itself.
"Outsourcing is something that people with MBAs decided was a good idea so people followed. I don't think it is such a good idea ...I understand why GSM [Global System for Mobile] is in such a mess," Mr Nishiguchi says, referring to the sharp drop in demand for handsets since late last year. "People outsourced in order to make cheap phones at large volumes. That is why they failed."
Yet Mr Nishiguchi's independent streak carries its own risks. "You can argue that small is good but large is better," says Dan Lucas, electrical components analyst at Credit Suisse Boston in Tokyo. Mr Lucas believes that as global mobile phone penetration increases, brand recognition will become more important. Without a certain scale, he says, it will be easy for consumers to overlook Kyocera.
Instead, Mr Nishiguchi has carved out a niche strategy focused around CDMA. In December 1999, Kyocera acquired the handset business of Qualcomm, which pioneered CDMA technology; today, only Nokia, Qualcomm and Kyocera are capable of commercialising it. Kyocera's relationship with KDDI, the number two Japanese telecoms carrier in which it owns a 23.8 per cent stake, has provided a ready market for the technology.
Other analysts, such as UBS Warburg's Yoshiharu Izumi, believe that in spite of its smaller size, Kyocera's investment in CDMA will give it a critical advantage as telecoms carriers launch third-generation services in coming years. "Kyocera's niche strategy works as long as mobile handset technology becomes more advanced. As long as carriers are putting global positioning system or personal digital assistant technology in their phones, Kyocera will be able to deliver a different type of product," Mr Izumi argues.
But 3G, at least in Europe and the US, will take several years to develop. More immediately, Mr Nishiguchi has to contend with an unprofitable US handset subsidiary, a struggling photocopier business, a sharp deceleration in global mobile phone demand and an increasingly formidable rival in Samsung of South Korea. These will surely be the toughest test yet of Mr Nishiguchi's convictions.
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