OSAKA -- Panasonic will own 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 like software.
The Japanese company expects its intangible assets to swell by roughly 900 billion yen ($7.9 billion) this fiscal year from the September acquisition of U.S. software company Blue Yonder, including goodwill, bringing the total well above 1 trillion yen. It had 1.06 trillion yen in fixed assets at the end of fiscal 2020.
Panasonic is one of a number of electronics companies, including compatriot Sony Group, pursuing a more asset-light strategy.
The 770 billion yen Blue Yonder deal is indicative of this shift. The company makes supply chain management software for manufacturers and logistics companies, with Starbucks and Renault among its customers, and earns 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 intangible assets, Panasonic has also shed less-profitable physical assets. It spun off its automotive prismatic battery business into an equity-method affiliate in April 2020, removing those fixed assets from its balance sheet. The company is also ending production of solar cells and liquid crystal display panels this fiscal year.
These moves guarantee that the balance will tilt from tangible to intangible assets by fiscal year-end, according to Panasonic.
"With the changes in our business portfolio, our investment in intellectual property and acquisitions, rather than equipment, will increase going forward," said Chief Financial Officer Hirokazu Umeda.
While Yasuo Nakane at Mizuho Securities warns that the Blue Yonder deal risks leading to "future goodwill impairment," Umeda sees little danger of a major write-off. "Its revenue base is stable," he said.
A similar transition is underway across the industry. 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 at 50 major electronics companies has been rising steadily.
A 2017 report by Japan's industry ministry found that "sources of earning power have shifted from tangible assets ... to intangible assets," while noting that investment in the U.S. and Europe had moved further in that direction than Japan.
"While the U.S. and others have transitioned their industrial structure to focus on software, traditional manufacturing remains strong in Japan, and there has been a strong trend of investing in fixed assets," the report said.