Pioneer North America, Inc.

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Pioneer North America, Inc.

founded: 1988

Contact Information:

headquarters: 2265 e. 220th st.

long beach, ca 90810 phone: (310)952-2210 fax: (310)952-2402 url: http://www.pioneerelectronics.com

OVERVIEW

Pioneer North America, Inc. is a wholly owned subsidiary of Japan-based Pioneer Electronic Corporation, which is one of the world's largest manufacturers of consumer audio and video electronics. In addition, Pioneer North America is strictly an administrative holding company for U.S. subsidiaries of Pioneer Electronic Corporation. The company is well known for having championed the Laser Disc digital video format and is an industry leader in the development of optical recording and playback technology. Car electronics is another mainstay business for Pioneer, which enjoys a strong brand image in the aftermarket car electronics market.

The company underwent a change in top management in 1998 and restructured operations in order to improve profitability. New product development efforts focused on DVD (digital video disc) and plasma display devices, among other things. However, despite the improvements, company management indicated that the cost of product development and introduction would weigh heavily on profitability.

COMPANY FINANCES

Pioneer does not report sales individually for its subsidiaries. For the year ended March 31, 1998, consolidated net sales were $4.2 billion, up 1.3 percent from 1996. Net income was a reported $46.7 million, a dramatic 145-percent increase from 1997. Car electronics took the lead with a 17-percent sales increase, accounting for 43 percent of Pioneer's revenue.

ANALYSTS' OPINIONS

Some analysts feel that Pioneer does not build products that offer an attractive mix of price and features, in order to compete effectively with companies like Toshiba, Matsushita Electric Industries, and Sony. It was observed that Japan's electronics giants weren't doing as well as in the past; some felt Pioneer would not survive. Pioneer's top-of-the-line technology, with prices to match, were causing the company to lose market share because most consumers didn't need or couldn't afford the high-end technology offered by Pioneer.

HISTORY

Founded in 1938 by Nozomu Matsumoto, the son of a Christian missionary, the firm developed Japan's first high-fidelity loudspeaker, the world's first audio system with separate speakers, and one of the earliest car stereos. Its present name, Pioneer Electronic Corporation, was adopted in 1961. In the 1960s, Pioneer expanded its line of products to include stereo sets and components, car stereos, and telephone answering devices. In the 1970s, Pioneer worked with the old Warner Communications company to develop a video-on-demand system that was years ahead of its time. Its laser disc was the first multimedia consumer format using digital technology.

Pioneer had been managed by the Matsumoto family since its establishment. The last Matsumoto family executives had been widely criticized for failing to react decisively to the company's difficulties, and in 1996 the president's position was taken by Kaneo Ito, a senior director with an international background.

STRATEGY

Projection televisions were mainly exported to the United States, where the market had been the strongest. In order to meet the growing demand, Pioneer started manufacturing televisions at its California-based subsidiary, Pioneer Electronics Technology, Inc. The company also signed a business agreement with the Tandy Corporation, a major U.S. electronics retailer, to market its projection televisions at Tandy outlets throughout the United States.

Pioneer began a return to profitability under aggressive new management. Under the leadership of Kaneo Ito, Pioneer took action to cut costs and improve competitiveness. The moves generated improved financial results for Pioneer. New product introductions, most notably digital video disc (DVD), generated sales growth for Pioneer as well. The company prepared for a substantial push in the DVD market. For example, approximately 200 people were assigned to the new DVD division, which developed basic technology and provided software. The DVD business that was launched in December 1996 was expected to become an important source of profits by 2001.

INFLUENCES

Pioneer has tried to out-engineer competitors and has kept nearly two-thirds of production in Japan, where labor costs are higher. But consumers were increasingly unwilling to pay $1,000 or more for a high-end Pioneer home stereo when they could get an Aiwa Electronics version for one-third as much. Competitors Sony and Matsushita have moved production to southeast Asia, where pay rates are a fraction of those in Japan.

FAST FACTS: About Pioneer North America, Inc.

Ownership: Pioneer North America is a wholly owned subsidiary of Pioneer Electronic Corporation, a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: PIO

Officers: Kazunori Yamamoto, Pres.; Ron Stone, CFO; Kim Boyer, Mgr., Human Resources

Employees: 350

Principal Subsidiary Companies: Pioneer Electronic Corporation of Japan is the parent company of Pioneer North America.

Chief Competitors: Pioneer competes worldwide with other makers of stereo, audio, and related electronics equipment. Some primary competitors include: Matushita Electric Industrial Company Ltd.; Sony Corporation; Sharp Corporation; Kenwood Corporation; Sanyo Electric; TDK Electronics Corporation; Mitsumi Electric; Aiwa Corporation; and Alpine Electronics.

Also notable have been Pioneer's efforts to improve its competitiveness in audio manufacturing, which have been the single largest source of losses. Pioneer was late to react to the need to move audio production away from Japan, and as a result the company's audio operations were poorly prepared for the yen's rise and the tough price competition that the company saw in 1995 and the first part of 1996. The company reported that losses from the audio business comprised the bulk of the total operating losses during 1996.

In the late 1990s, Pioneer boosted overseas audio production to 75 percent of overall production. The company created a lineup of competitively priced audio products that helped the company regain market share. However, the company also felt the effects of the Asian economic crisis in 1998. In May 1998, as it announced a tenfold increase from pre-tax profits from 1997, Pioneer warned of a tough business market as a result of Japan's depressed economy and the Asian economic crisis. Going a step further, in June 1998, the company predicted sales to drop 20 to 30 percent in 1998 as a result of the Asian economic turmoil.

CURRENT TRENDS

In 1998, Pioneer North America restructured its marketing operations in order to eliminate redundant positions and improve efficiency. Pioneer's companywide streamlining was centered on combining the home and car electronics divisions. The company said this would allow retailers to deal with one "overall product and marketing entity" for all of Pioneer's retail products. Previously, the divisions had separate sales, product management, and customer support staffs. Pioneer admitted that there were some monetary gains through the layoffs, but insisted that the main reason for the initiative was to increase the company's ability to work with its retailers.

The company's portfolio of patents covering optical recording technology yielded increasing royalty payments during the late 1990s. Pioneer also benefited from other manufacturers' sales of optical audio and video products as a result of the portfolio of patents that Pioneer controls. Much of Pioneer's bottom-line profitability actually comes from patent royalty payments.

Pioneer Electronic Corporation, through its North American subsidiary Pioneer North America, started a new music label in 1996. The label was named the Pioneer Music Group (PMG). However, since Japanese electronics giants Sony and Matsushita have had negative experiences with American music labels, some were surprised that Pioneer had entered into this business venture.

Pioneer joined many other companies in taking advantage of advancing computer technology. Their Internet site offers online technical assistance as well as interactive opportunities. Despite concern that it would anger suppliers, Pioneer decided to begin selling its products directly to consumers through the site.

PRODUCTS

Along with the rest of the industry, Pioneer benefited from the wave of new consumer electronics products introduced in 1997, although real sales volume was not anticipated for several years. The main products of interest from Pioneer's point of view were DVD and plasma display, which the company began selling in 1997. A successful introduction of DVD was crucial to Pioneer's overall success for the next five years. LD-compatible DVD players were introduced early in 1997. Car navigation systems also had the potential to become a profitable product line, although sales growth rates for that product were initially disappointing. The company launched two new models of car navigation systems with their DVD-ROM drive. Pioneer also sought business opportunities in digital cable Television systems.

CHRONOLOGY: Key Dates for Pioneer North America, Inc.

1938:: Fukuin Shokai Denki Seisakusho is established in Japan
1947:: Fukuin incorporates
1961:: Pioneer Electronic Corporation becomes the official company name
1962:: Introduces the first stereo system with detachable speakers
1966:: Pioneer Electronics USA Corporation is established
1978:: Presents the first laser optical video-disc player
1982:: Introduces its first compact disc (CD) player; experiences a sales loss for the first time in its history
1996:: Introduces the world's first combination DVD/Laser Disc/CD player; starts Pioneer Music Group record label

Pioneer supplied a series of car-stereo head units from its Ohio plant to Ford Motor Company for use in 1998 truck and sport utility vehicles, including models to be marketed in Japan. This was the first time that Pioneer arranged to supply finished products to Ford, a major international auto manufacturer. In 1998, the company released a steady stream of new stereo equipment for home and car use, including stereo speakers for personal computers, hoping to capitalize on the explosive growth in the computer market. In May 1998, Time Warner Cable agreed to buy up to 1 million analog converters from Pioneer Electronic over the next four years, guaranteeing the company's presence in this market. Through its new music label, Pioneer released a DVD promo video for the pop band Full on the Mouth in a move to demonstrate the label's innovation.

CORPORATE CITIZENSHIP

Pioneer has turned its attention to the problems of the inner city, and focused on training initiatives. For instance, Pioneer Electronics has invested $500,000 in its South Central Los Angeles Pioneer Academy to enable underprivileged but promising high school students to study electronics after school. If they perform well, students earn a paying summer internship at a Pioneer plant.

Other social contributions worldwide include Pioneer's efforts to protect the environment, co-sponsorship of an annual scholarship contest in Thailand, and fundraising for United Way. Also, Pioneer Electronics Technology, Inc. has been offering support to its local community of Pomona, California. In one endeavor, Pioneer helped finance and equip a patrol car for DARE (drug abuse resistance education).

GLOBAL PRESENCE

Initially, Pioneer's products were distributed in Europe through a network of independent agencies, until the founding in 1970 of Pioneer Electronic (Europe). Based in Belgium, the European operation was driven by growth of the audio-visual market and its strategy of operating near customers it serves. In 1978, it set up its first European subsidiaries in Germany, Great Britain, and Denmark. This trend toward globalization continued through the next decade, with distribution subsidiaries added in Italy (1980), the Netherlands and Belgium (both 1981), Spain (1986), Norway (1990), and France (1992). In 1994, a representative office in Moscow for the Russian market opened.

The company has 17 production plants in Japan, and also maintains overseas production facilities in the United States, Belgium, France, and Spain. In Japan, its sales are made through over 120 regional sales offices to both wholesalers and retailers. Overseas, the company's products are exported to countries where its subsidiaries or local companies are in charge of sales and after-sales service. Demand for Pioneer's car audio equipment remains robust in Central and South America as well as in Europe. In the late 1990s, the company estimated that it had captured nearly 90 percent of the market for DVD players in Japan, and in June 1998, Pioneer stated that lower operating costs at Thailand plants would help the company enjoy a larger market share.

EMPLOYMENT

Pioneer's workforce steadily grew until 1994, when it began a downward trend. The company's overall plan was to reduce payroll 9 percent by 1996 via "voluntary" retirement of employees as young as 27. Pioneer's long-term goal was to reduce employees by 1,500 by March 1997. Under the new leadership of Kaneo Ito, production shifted to southeast Asia in order to cut costs. Further restructuring of Pioneer's parent company shifted $900 million of manufacturing abroad. Consequently, those moves both reduced costs and improved competitiveness. Pioneer's management estimates that the move has taken 2 billion yen per quarter off the company's fixed cost base.