Terrie's Take 962 - Baring To Buy Stake in Pioneer, But is it Too Late? e-biz news from Japan
terrie at mailman.japaninc.com
Sun Sep 23 20:24:39 JST 2018
* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
General Edition Sunday, Sep 23, 2018, Issue No. 962
- What's New -- Baring To Buy Stake in Pioneer, But is it Too Late?
- News -- What do earthquakes cost?
- Upcoming Events
- Corrections/Feedback - Space Elevator hints right in front of us
- Travel Picks -- Very English Morning Tea in Kumamoto, Super Potato in
- News Credits
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+++ Baring To Buy Stake in Pioneer, But is it Too Late?
Last week the audio/car electronics manufacturer, Pioneer, announced
that it was selling a large private placement to Baring Private Equity
in Hong Kong. Although the deal won't be consummated until October, the
placement will be for JPY60bn, and appears to give Baring control of the
struggling firm. We have no doubt that the sale is being made on very
favorable terms to Baring, because earlier this month Pioneer's share
price collapsed after rumors that it might go bankrupt by missing a
large bank loan repayment.
The Baring's Managing Director here in Tokyo is none other than Shane
Predeek, who has been with the firm for 12 years. Predeek was previously
with Ripplewood Holdings, where among other things he executed the
buyout of Japan Telecom, a firm that eventually became Vodafone Japan
then Softbank Mobile (now Softbank Corp.). A fluent Japanese speaker,
Predeek was also the Chief Investment Officer of Joi Ito's Neotony
company back in the 1990's - so he knows his way around.
And that's just as well, because in taking on responsibility for turning
around Pioneer Japan, Mr. Predeek has his work cut out. Pioneer has been
slowly sinking for over 15 years, after making some wrong calls about
where the consumer electronics world was going. The management at the
time, who have since fallen on their collective swords as penance, took
Pioneer into the plasma TV business, and committed huge amounts of
capital to the project. What they failed to see was the rapid rise in
Chinese technical capability, coupled with the fact that LCD technology
would turn out to be so much better than plasma in the long run. This
wrong call was compounded after the Lehman Shock by more bets on
hardware and a refusal to accept that Japan, by virtue of costs,
management isolation (from international trends), and lack of engineers,
would sink below the point of no return in the race to produce consumer
To its credit, the company did recognize early on that it had
opportunities in the B2B car electronics and mapping software sector,
and it invested in creating a subsidiary mapping business called
Increment P which surprised everyone by becoming a primary maps data
vendor to Apple Japan back in 2011. The company has also recognized that
while it can no longer compete in consumer electronics (and so for the
last few years has been selling off slabs of that business to private
equity firms), it might still be able to compete in core hardware
components for new vehicle technologies, most notably 3D LiDAR systems
for autonomous cars. The problem with this sector is that there are
already many competitors who are much better funded and far less
burdened (with debt and aged employees) than Pioneer.
[Article continues below...]
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Indeed, Predeek is on record as saying that what Baring finds
interesting in Pioneer is its digital mapping expertise, stating, "We
want to speed up the development and growth of the Asia mapping
business." Then, even as Pioneer's 2018 Annual Report talks a brave
story about the firm's 3D LiDAR and car electronics businesses (i.e.,
the ones that are losing marketshare and sucking up all the R&D cash),
CEO Koichi Moriya says in a Nikkei interview that subsidiary Increment
P now represents the company's "future pillar." This is kind of
disturbing, actually, because here you have the CEO indirectly saying
that all the hardware stuff could be doomed.
And that is of course the problem. Pioneer, like so many big Japanese
manufacturing firms, has found it exceedingly difficult to accept that
the world has moved on and their future lies in intellectual property
and software rather than in factories churning out hardware in
competition to the Chinese. The question is whether Baring's JPY60bn is
going to be enough to slough off the non-performing assets and refocus
on the future, within the incredibly short space of five years. Our take
is that given the size of the business negatives involved, neither
JPY60bn nor five years will be enough - unless there is a secret deal
between the parties to allow Baring to sell most of the business off to
the Taiwanese. In that case, just as with Sharp, there will be enough
people and depth of know-how on the Taiwanese side to quickly and
efficiently rebalance the Pioneer assets between Japan and China/Taiwan.
But then it won't be Pioneer's business any longer.
Let's say that Baring does manage to divest a bunch of the hardware
businesses and significantly downsize the company. That leaves the
mapping and LiDAR businesses, and perhaps a couple of car electronics
operations. We wonder if the mapping business is really as good as the
senior management seems to think? We say this because we have had direct
interaction with the Increment P engineering team. They have some
reasonably strategic thinking senior managers, who have been strong
enough to do a deal with Apple and keep Apple as a customer for the last
six years, even as Apple Maps was being trashed by Apple's own users
(who instead would load Google Maps and use that). To be fair, Apple
Maps has sucked primarily because of the interface it uses, but
nonetheless, the inaccuracy of the Increment P data was infuriating and
unforgivable to many users (including us), who would be sent to the
wrong place by the app.
In fact, this bad marriage has gone on for so long, that, according to
some sectoral insiders, Apple Japan is now generating its own map data.
If true, this can't be good for Increment P or for Pioneer.
Unfortunately we can't tell from Pioneer's Annual Report just how much
money it is earning from fees from Apple, nor for that matter how much
Increment P is contributing to its parent. So it's anyone's guess how
losing Apple as a customer would affect the firm. We suppose it must be
significant enough, though, that it's top of mindshare for both Baring
and the Pioneer CEO.
Our own interaction with Increment P was rather negative. The subject
was the syndication of Japan Travel location data (Japan Travel has over
37,000 articles in 13 languages) to the mapping business, and a joint
project to target inbound travelers with this data. However, as the
talks moved from strategic managers to engineers, it quickly became
clear that the Increment P engineers weren't interested in alliances
with anyone else, and they ended up bluntly telling us that they could
and would generate all this data themselves, along with a website that
would be extremely popular with foreigners. None of this eventuated of
course, and several years on those engineers are still mired in their
algorithms and dreams of world domination - and now even Apple is
drifting away from them. Hard-headed arrogance has its price.
So what Predeek's team have as a challenge isn't just moving the
physical assets around. They will also have to deal with the core issue
which is the engineers and a "not invented here" culture so endemic to
Japanese firms. This is no different to the challenge that Carlos Ghosn
faced when he took over Nissan, and where he had to remove most of the
company's top managers, replacing them with more flexible junior staff.
But it's not clear whether Pioneer has the size or depth to be able to
follow the same process, and it may mean that Baring has to replace most
of Pioneer's core team with outsiders. For that reason, we wonder if the
purchase is really worth the effort?
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- Another Crypto Exchange Hack in Japan
- Naomi Osaka and the Nationality Act
- Hakuho - the awesome Mongolian Yokozuna topples records
- What do earthquakes cost?
- BOJ stimulus dwarfs other countries'
=> Another Crypto Exchange Hack in Japan
The FSA has come down like a ton of feathers (yes, no bricks yet) on one
of Japan's 16 licensed crypto exchanges, Zaif, after the company (whose
proper name is Tech Bureau Inc.) was hacked for JPY6.7bn of Bitcoin and
other assets last week. Zaif was already on a short leash with the FSA
because of its lackadaisical attitude to security and internal processes
and it's just a shame that the FSA didn't move faster and harder after
previous transgressions. It took Zaif engineers two whole days to
realized they'd been hacked and robbed. The company now says that it
will sell a chunk of its shares in order to raise the funds needed to
reimburse the victims. ***Ed: Apparently in one earlier incident Zaif
allowed users to buy Bitcoin for free, after a programming error. In our
opinion, this should have prompted the FSA to suspend the exchange's
license. Instead, they were allowed to drunkenly continue business, and
even now they are allowed to continue operating... hard to believe. We
think it's time the FSA switched to bricks.** (Source: TT commentary
from cointelegraph.com, Sep 22, 2018)
=> Naomi Osaka and the Nationality Act
Good to see this story about the pragmatic attitude of Japan's
Immigration Bureau about Japanese holding other nationalities. The
subject arises because in two year's time 20-year old Naomi Osaka (the
tennis player) will theoretically have to chose either Japanese or US
citizenship. However, as the Japan Times points out, the Japanese
Nationality Law is really a paper tiger, because no one out of the
estimated 890,000 dual nationals has ever been charged for having
another nationality. Specifically, the law carries no penalties or
mechanisms to force people to choose a single nationality. ***Ed: This
is of course good news for the increasing number of "hafu" kids who have
one Japanese parent. If you're in an international marriage, the idea is
to follow a simple mantra: register your newborn as a Japanese first,
then the other nationality(s). That way the Japanese government has no
record of the second or other nationalities.** (Source: TT commentary
from japantimes.co.jp, Sep 19, 2018)
=> Hakuho - the awesome Mongolian Yokozuna topples records
Despite a series of nagging injuries recently, Yokozuna Hakuho has
proven once again that he is a maestro among the mundane in Japanese
sumo. In winning the Autumn grand tournament, he has now broken two
all-time records: he is the first sumo wrestler to win 1,000 victories
in the top division, and he is the first to have won 41 Emperor's cups.
This time around he won 14-0, beating Ozeki Goeido. ***Ed: If there was
ever proof that the Japanese need to allow more immigration, Hakuho is
it. Almost single-handedly, his exciting style has saved the sport of
sumo from irrelevance due to the poor performance of many of the local
fighters.** (Source: TT commentary from mainichi.jp, Sep 22, 2018)
=> What do earthquakes cost?
If like us you ever wondered what each major earthquake costs the
country when they occur (sometimes multiple times a year), you now have
an answer thanks to a little article put out by Jiji Press. Apparently
insurance payouts on non-commercial claims caused by the June Osaka
earthquake (the one in Takatsuki, in between Osaka and Kyoto), reached
JPY86.6bn as of Sept. 12, according to the General Insurance Association
of Japan. This amount was surprisingly higher than the JPY78.3bn for the
much more deadly Kobe earthquake in 1995, and is attributed to more
people buying earthquake insurance. The highest payout on record was for
the 2011 Tohoku earthquake, which cost insurers JPY1.279trn. (Source: TT
commentary from the-japan-news.com, Sep 21, 2018)
=> BOJ stimulus dwarfs other countries'
While many central banks are watching the tightening moves by the US
Fed, Bloomberg has a great article (excellent graphs) highlighting just
how much bigger the Japanese effort has been and will continue to be. No
wonder the Japanese stock market looks healthy, the Bank of Japan (BOJ)
owns 75% of the total ETF market! In fact, the BOJ now owns JPY557trn
worth of assets, more than the national GDP. At this rate, Bloomberg
thinks that if the BOJ is successful in raising inflation to its target
2% (no telling if that will ever happen, though), then the value erosion
of the assets the bank holds may prompt a financial crisis all of its
own. ***Ed: Interesting stuff, and a great argument for the BOJ to ease
off slowly but surely, and forget about the inflation target. In all
likelihood, Japan's inflation is more closely linked to wages growth of
ordinary citizens than it is to the capital markets an trickle down
anyway.** (Source: TT commentary from bloomberg.com, Sep 19, 2018)
NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.
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No upcoming events this week.
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bike port (more for pre-bookings), and renters can use the bicycle or
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=> In Terrie's Take 960 we ran an article on Japan's "space elevator"
experiments. A reader points out that the early signs are that this is a
serious and credible undertaking.
*** Reader comments: It seems like from the several stories I have read
on the proposed "space elevator" that no one has picked up on the
significance of the Sky Tree in Oshiage. While it seems unlikely that
Sky Tree itself would be a suitable port for such a fantastic means to
get into earth orbit, it at least is proof of concept that such a tall -
and much taller - structure can be successfully built.
I suspect that for the truly enormous structure that would be needed,
Tokyo would be not such a great spot for it due to the uncertain seismic
activity here, and it might need to be in a better geographical location
for earth rotation requirements, (though maybe a stationary "lift"
satellite would not have a problem with WHERE it is locked into orbit).
The first several miles of the ground-based steel structure, with the
rest being sort sort of super-strength cable, would likely be crucial
and save a great deal in the total cost of the space elevator. Anyway,
the point here is that Obayashi Corporation, the builder of the Sky
Tree, is also among those proposing the space elevator. I think that is
+++ TRAVEL DESTINATIONS PICKS
=> Walet Cottage Cafe, Kumamoto
Tea and scones with hand-made jam in a cottage garden
Hidden away on a narrow street, Walet is nestled among houses in the
countryside, but you can not miss it thanks to all the people milling
around this quaint cafe. On the day I visited, there was a small crowd
outside even before it opened, chatting in the uncultivated yet pretty
cottage garden outside, and waiting for the doors open at eleven
o'clock. A tortoiseshell cat walked slowly towards to us which made me
feel even more relaxed and peaceful.
When you are inside, give your name at the door and wait to be called
when a table is ready. I ordered scones with hand-made jam which is also
available as take-out as well. They were served on an antique plate
which added to the bucolic atmosphere. The scone dough is neither too
dry or bitter and is of a good size. Yes! I really enjoyed them with
fresh cream and a jam which was not too sweet.
=> Super Potato in Akihabara
Flagship store for the retro video game chain
If you can whistle the theme songs to Super Mario Brothers and the
Legend of Zelda without hesitation, Super Potato should be on your list
of must-visit places in Tokyo. If you are rolling your eyes at your
traveling partner's ability to whistle them, you might want to wait
outside for this one.
While most stores only focus on what's new in the gaming world, Super
Potato is a chain of retro video game stores in Japan filled to the brim
with equipment and merchandise for games that you've long forgotten.
Their shop in Tokyo serves as a kind of flagship store for the chain and
includes a vintage video game arcade, leaving lovers of old school video
games grinning from ear to ear.
Navigate Akihabara's maze of computer parts shops and evade all the
girls in maid costumes, and you'll find Super Potato on the third,
fourth, and fifth floors of a building painted in classic Mario decals.
Don't be put off by the the somewhat sketchy back-hallway-back-stairway
style entrance - just follow the sounds of the 8-bit video game cheesy
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+++ ABOUT US
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)
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