PC Panasonic Corp.

Panasonic Corp. (6752.TO) said Thursday that it will sell subsidiary Sanyo Electric Co.'s household appliance businesses to the Haier Group, in an uncommon instance of a Japanese electronics conglomerate allowing a rising Chinese rival take over a chunk of a major business segment.

The sale of the Sanyo operations -- mostly washing machine and refrigerator businesses -- is part of Panasonic's efforts to eliminate overlapping areas since its 2009 purchase of Sanyo. For Haier, the acquisition of Sanyo's businesses will help it move a step closer to becoming a globally recognized quality appliance brand like Whirlpool or Electrolux.

While the companies didn't disclose the value of the deal, a person familiar with the matter said Thursday that the sale price would be about Y10 billion ($130 million). Panasonic, which separately reported a first quarter net loss Thursday, has been rummaging through Sanyo's business portfolio to offload assets that it sees as nonperforming.

"We haven't finished sorting out overlapping businesses (at Sanyo) yet. We are still half way," Panasonic Chief Financial Officer Makoto Uenoyama said at a press conference.

Panasonic, best known for its Viera flat-panel televisions, bought a majority stake in Sanyo in December 2009 mainly because the smaller Japanese electronics maker is one of the world's biggest suppliers of rechargeable lithium-ion batteries used in consumer electronics and a competitive player in solar panels. It turned Sanyo into a wholly owned unit in April this year.

As Sanyo produces a wide range of home appliances that the parent company also makes, Panasonic President Fumio Ohtsubo said earlier this year that the segment would need to be reorganized.

Sanyo's rechargeable battery business faces increasingly fierce competition from South Korean and Chinese players, making it all the more necessary for Panasonic to streamline Sanyo's operations and focus on the competitive segment.

Sanyo's washing machine and refrigerator businesses generated Y85.6 billion in revenue in the last fiscal year ended March 31. For the same period, Sanyo posted revenue of Y1.489 trillion and a net loss of Y35.16 billion.

The acquisition of the Sanyo businesses is "an important part of Haier's overall growth strategy," said Haier Vice President Du Jingguo in a statement released Thursday.

Haier has said previously it was looking at overseas acquisitions to grow. President Yang Mianmian told Dow Jones Newswires in March it would look at opportunities that arise.

The Chinese firm previously held talks with General Electric Co. in 2008 to buy the U.S. firm's appliance unit. Before the talks with GE, Haier made an unsuccessful bid for Maytag Corp. in 2004 but lost out to Whirlpool Corp. (WHR).

Haier holds more than 6% of the world's white-goods market. Last year, the company posted sales of CNY135.7 billion ($20.7 billion).

Even after selling Sanyo's home appliances businesses to Haier, Panasonic's own home appliances businesses will be able to stay competitive against the Chinese rival, said Uenoyama.

"We have a major technological advantage in household appliances," with superior offerings of energy-saving products, he said.

Also on Thursday, Panasonic reported its earnings for the fiscal first quarter from April to June. The company swung to a net loss of Y30.35 billion in the three-month period, reversing from a net profit of Y43.68 billion in the same period a year earlier, as the lingering impact from the March 11 earthquake and tsunami hurt its domestic production.

Panasonic is one of many Japanese manufacturers that reported damage to production facilities after the disaster. Even after the company's affected facilities resumed operations, disruption to parts and raw material supplies continued.

The company eked out an operating profit of Y5.58 billion for the quarter, compared with a profit of Y83.84 billion a year earlier. Stiff price competition and higher materials costs also dented operating profit in the quarter, the company said.

Revenue dropped 11% to Y1.930 trillion from Y2.161 trillion.

The operating profit figure would have been Y60 billion higher, and revenue Y120 billion higher, had it not been for the earthquake's impact, the company said.

Although the quake's impact is fading, another major concern for Panasonic is the yen's strength, particularly against the dollar, which hurts their overseas revenue and profits when repatriated.

"The current levels for the yen are abnormal," said Uenoyama. "I don't expect the yen to stay this strong for a long time."

With the yen's strength, high corporate taxes and concerns over higher electricity costs, "it's becoming extremely difficult to keep manufacturing operations in Japan," he added.

Still, Panasonic maintained its earnings forecasts released last month for the full fiscal year through March. The company expects a 59% drop in net profit to Y30 billion and a 12% decline in operating profit to Y270 billion, while it expects revenue to stay almost flat at Y8.7 trillion.

Its earnings forecasts are based on the assumption the dollar will average Y83 and the euro Y110 during the fiscal year.

Although the dollar is currently weaker against the yen than Panasonic's forecast, Uenoyama said that the company's foreign exchange forward contracts -- a way to hedge against currency fluctuations -- already cover the July-September quarter entirely and a majority of the October-December quarter.

-By Juro Osawa, Dow Jones Newswires; 813 6269 2794; juro.osawa@dowjones.com

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