Why to Be Glad America Isn't Making TVs Anymore

"The Japanese consumer electronics industry is one of the most prominent industries in the world and is the world's largest electronics manufacturer ..." So begins the Wikipedia entry on the "electronics industry in Japan."

And you know what we should be saying to that? Good riddance. They can have it.

Despite all the complaining we used to hear in the 1980s about how Japan was "stealing American jobs" and "ruining American manufacturing" -- the same complaints we hear today about China -- it isn't an industry that was worth keeping.

Panic at Panasonic

On Friday, one of the leading lights of Japan's vaunted electronics industry -- Panasonic -- warned that its annual earnings report for 2011, due out in March, is going to contain news of a $10.2 billion loss.

This might come as a surprise to a lot of folks who lamented the loss of America's television manufacturing industry in the 1980s and 1990s. But to anyone who's been following the industry since it moved offshore, it's hardly news that the business of making televisions hasn't exactly been tuning in stellar profit margins.

In fact, most of the manufacturers that consumers love for the high quality of their TV products, investors loathe for the low quality of their profits.

According to Panasonic, almost its entire loss is attributable to writedowns of the value of the firm's Sanyo Electric subsidiary. The company lost money in three of the last four years, but you can't even blame the financial crisis for that. Fact is, for the past 20-odd years, Panasonic has only rarely posted a profit margin greater than 3%. And it is hardly alone in this.

Last week also saw Sony (SNE) warn of a bigger annual loss than previously feared (which also cost Sony's British CEO, Howard Stringer, his job). And like its Japanese TV rival, Sony has long struggled on the profits front. It hasn't reported an annual profit since 2008, and usually makes do with profit margins of 3% or less as well.

'L' is for Losses

Sharp (SHCAY.PK)? Toshiba (TOSBF.PK)? Hitachi (HIT)? Across the length and breadth of the Japanese electronics industry, most of these firms consider themselves lucky when they can earn a penny or two on a dollar's worth of sales -- and all too often, they don't make even that. In fact, the only thing more common in Japan's electronics industry than lousy profits reports are management promises to reverse the trend -- as when Sony's new boss promised to deliver "a V-shaped performance improvement" last week. For the past 20 years, though, the letter of choice has been more like a capital "L".

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Viewed in this light, it's hard to complain too much about how Japan "stole" the high-tech electronics business from the U.S. It's probably more accurate to say that they took a low-margin business off our hands -- setting themselves up to face cut-rate price competition with the likes of Korea's LG and Samsung, and China's Haier and Hisense.

Meanwhile, freed from the dead weight of a low-margin, commoditized television industry, American companies like Apple (AAPL), Corning (GLW), and Google (GOOG) have instead innovated and developed new technologies, and new products, with correspondingly beefier profit margins.

Apple's iPhones and iPads are the most obvious examples -- and the most obvious examples of new products changing how Americans watch "TV" on the new small screens. But there's also Corning, which started off making the glass that the TV makers needed for their new lines of LCD television sets. And Google, which took the even more profitable road of avoiding manufacturing, and focusing on developing software to power the smartphones that now compete with Japan's televisions ... and our own Apple iPhones.

When you consider that both Apple and Google regularly report net profit margins in the neighborhood of 25%, while Corning boasts an even more impressive 35% net, it's pretty clear which country gets to claim the "W" in this contest... and why Japan gets stuck with the "L".

Motley Fool contributor Rich Smith does not own shares of any company mentioned above. The Motley Fool owns shares of Apple, Corning, and Google. Motley Fool newsletter services have recommended buying shares of Apple, Google, and Corning. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.