With debts of 3.1 billion yen, how has this Japanese 'time-honored brand' ended up in such a dire situation?

*Written by Black Spade and Long Sword

With debts amounting to billions of yen, yet another Japanese 'old brand' has fallen.

On May 13, the Japanese audio equipment manufacturer Onkyo Home Entertainment submitted a bankruptcy application to the Osaka District Court. Onkyo's representative director, Hiroshi Lin, admitted that the company has long been unable to repay its debts, and currently, two subsidiaries are unable to continue operations due to financial difficulties. The company itself is also unable to prevent the deterioration of cash flow, hence the application for bankruptcy to the court. According to the disclosed data, Onkyo's liabilities amount to 3.1 billion yen (approximately 163 million RMB).

The name Onkyo may be relatively unknown outside of its niche, but it is well recognized among audio enthusiasts. Established in 1946, it has been a household name in Japan for speakers, turntables, and stereo equipment. Its Radian mini sound system was extremely popular in Japan before the millennium, while another product, the Grand Scepter GS-1, won awards in France.

How did such a once-glorious brand fall into the tragedy of accumulating billions in debt and bankruptcy? This story likely dates back to 2003—after all,the first reason for its decline was Apple's entry into the music market.

In 2003, Apple launched iTunes, a service that allowed users to conveniently download and enjoy music over the internet. The following year, the music player iPod was introduced, and the "iPod + iTunes" golden combination officially challenged numerous CD companies and audio giants. By the time Apple released the iPhone 4 in 2010, alongside the rise of Android manufacturers pushing smartphone adoption, traditional audio companies like Onkyo had already lost any competitive edge.

For a long time, Onkyo adhered to the typical mindset of Japanese companies during the industrial era—striving for perfection, dedicating extensive time to the design and development of a specific product category, while being relatively insensitive to market changes.This caused it to miss the portable music player era of "iPod + iTunes," and then falter amidst the waves created by smartphone manufacturers and online music platforms.

Onkyo did consider ways to improve this situation. In 2015, it acquired the audio equipment division of Pioneer, attempting to rescue its declining performance through standardized product development and enhanced profitability. However, Onkyo seemed to remain unaware that bolstering a dying audio industry was merely a superficial fix; this acquisition added a significant debt burden to the company without facilitating any meaningful transformation.

Ultimately, Onkyo's products have been pushed to the margins of the ever-evolving entertainment market, with its audio equipment, a source of profit, experiencing a continuous decline in sales over the years. In the fiscal year ending March 2020, it recorded a massive deficit exceeding 9.8 billion yen.

Due to a lack of funds, Onkyo was unable to maintain even the most basic manufacturing of its products. According to reports from Nikkei News, many electronics retailers complained that "they simply cannot stock Onkyo's products."

In order to maintain cash flow and its status as a listed company, Onkyo had no choice but to consider packaging and selling off its business.

In May 2019, Onkyo announced an agreement with the American audio company Sound United to sell its home audio business for 8 billion yen. The then President and Representative Director of Onkyo, Masanori Daiko, even stated that the company was willing to accept OEM production after selling its home audio business, striving for a certain degree of growth. However, the parties ultimately failed to reach an agreement on the transaction, leading to the cancellation of negotiations, which directly resulted in Onkyo facing insolvency risk in the fiscal year 2019.

At that time, Onkyo still had the backing of the Evo Fund, an investment fund from the Cayman Islands. With the help of the latter, Onkyo announced a plan in July 2020 to issue new shares to raise 4.6 billion yen; although this plan ultimately ended hastily after issuing only four rounds of new shares, it at least helped Onkyo survive for a while longer.

Unfortunately, while capital may occasionally lend a helping hand, it will never invest in a bottomless pit. In 2021, Onkyo issued Class C special shares subscribed by 12 enterprises, including clients, aiming to raise up to 6.2 billion yen—enough to prevent it from hitting the delisting criteria of the Tokyo Stock Exchange. However, due to Evo Fund leading the refusal to exercise subscription rights, Onkyo ultimately raised only 1.2 billion yen and had to quietly delist.

After losing its listing status, Onkyo seemed to still want to make one last effort, and its attempts almost gave the illusion of a resurrection.

Subsequently, Onkyo successfully reached an agreement with Voxx, a U.S. consumer electronics giant, and its wholly-owned subsidiary Premium Audio Company, LLC (PAC), to establish a joint venture to take over Onkyo's loss-making audio business. According to the agreement, this joint venture will pay Onkyo $30.8 million (approximately 3.983 billion yen) as an acquisition fee, and will also assume some of its liabilities, while agreeing to pay Onkyo certain sales commissions on products in the future; in the Chinese market, Onkyo's products resumed production at the end of last year, with Cinemaster as the exclusive distributor.

Of course, this is merely a last glimpse of light before the demise of Onkyo; even with hundreds of millions of dollars in funding, it ultimately failed to bridge Onkyo's significant financial gap. Looking back now, from the moment it ignored the changes of the times, Onkyo's failure was actually already destined. As the last representative and president, Lin Heng, stated,As early as when digital technology began to develop, the company still had sufficient capability to keep pace with market changes, but 'they never chose to do so.'

*Image from Yandex

429 Views