Pioneer Corporation

Company Profile
Reference Code: 548A1D93-B00D-4184-B5D7-ABA6BE8D2934 Publication Date: Dec 2007

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Pioneer Corporation Datamonitor (Published Dec 2007)
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Table of Contents

TABLE OF CONTENTS Facts & Overview... 4 Business Description.. 5 History... 6 Major Products & Services.. 8 Revenue Analysis... 10 Key Employees.. 11 Locations & Subsidiaries.. 12 Company View... 14 SWOT Analysis.. 18 Top Competitors... 22
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Company Overview

COMPANY OVERVIEW
Pioneer is a manufacturer of consumer and commercial electronics. The company provides car electronics and is also engaged in the manufacturing of video equipment and audio products, as well as the licensing of optical disc technologies. The companys primary markets are Japan, North America, Europe and Asia. It is headquartered in Tokyo, Japan and employs about 37,700 people. The company recorded revenues of JPY797,102 million (approximately $6,760.2 million) during the fiscal year ended March 2007, an increase of 5.6% over 2006. The operating loss of the company was JPY7,717 million (approximately $65.4 million) during fiscal year 2007, as compared to an operating loss of JPY71,165 million (approximately $603.6 million) in 2006. The net loss was JPY6,761 million (approximately $57.3 million) in fiscal year 2007, as compared to a net loss of JPY84,986 (approximately $720.8 million) in 2006.

KEY FACTS

Head Office 1 Meguro Meguro ku Tokyo JPN Phone Web Address Ticker # Employees Turnover (JPY Mn) Financial Year End http://www.pioneer.co.jp Tokyo: 6773 37,662 797,102 March
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Business Description

BUSINESS DESCRIPTION
Pioneer is engaged in the development, manufacture, and sale of a variety of electronic products, such as audio, video, and car electronics products. It is also involved in the AV (audio/video) software business. The companys primary markets are Japan, North America, Europe and Asia. It also sells its products in consumer and business markets through sales offices in Japan and through sales subsidiaries of Pioneer and independent distributors outside of Japan. Pioneer has nearly 40 manufacturing facilities worldwide. The companys structure comprises four reportable divisions: home electronics, car electronics, patent licensing, and others. The home electronics segment includes electronic sound and video equipment for home consumers, such as stereos, DVD players, TV systems and telephones, plasma TVs and DJ equipment. The car electronics segment includes car stereos, car CD players, car MD players, car DVD players, car speakers, and car navigation systems. In Japan and overseas, sales from this division are generally made to the consumer market and to automobile manufacturers on an OEM (original equipment manufacture) basis for installation in new cars on production lines or as optional parts. Pioneer also markets a car navigation system that incorporates a data communication module for access to the latest map data. The patent licensing segment includes the licensing of patents related primarily to laser optical disc technologies. Most of the royalty revenue from this segment is obtained from licensing patents related to laser optical disc technologies that are held by Discovision Associates, the companys wholly owned US partnership. The others business segment include products primarily for business use, such as DVD-R/RW drives, factory automation systems, pre-recorded videocassettes, CDs and optical disc manufacturing systems. Pioneer supplies DVD-R/RW drives to personal computer (PC) makers on an OEM basis.

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History

HISTORY
Pioneers business originally started in 1938 as Pioneer Electronic, when it started manufacturing audio speakers. The company was incorporated as a joint stock company in 1947. In 1955, it commenced the manufacture of audio amplifiers. In 1999, Pioneer Electronic changed its name to Pioneer. Pioneer established a new company, Pioneer Shared Services Japan (JPS) in 2000 to provide business and administrative support for Pioneers headquarters and sales branches and develop systems and solutions regarding logistics and information systems for the group. The company opened the Pioneer Research Center USA, a research and development unit in San Jose, California, in 2000, and developed both digital television and digital network technologies. In the same year, Tohoku Pioneer, a subsidiary of Pioneer, partnered with Motorola to integrate its patented organic electroluminescence (OEL) technology into the Motorola Timeport P8767 digital phone. Pioneer announced the establishment of two new divisional company units in 2003, Components Business and Industrial Solutions and Entertainment. Pioneer also introduced the CD player for disk jockeys and its first DVD recorder with a hard disk drive (HDD). In mid 2004, NEC transferred to Pioneer its entire stake in its plasma display manufacturing subsidiary, NPD, and the intellectual property rights relating to plasma displays held by NEC. Pioneer introduced its new range of PureVision High-Definition Plasma TVs in Japan in July 2005. In September same year, the company introduced three new internal DVD writers with ATAPI connection for Windows PCs; the DVR-A10-J (pure white), DVR-A10-JBK (black) and DVR-A10-JSV (silver). In the same year, Pioneer introduced the DVR-330H-W (white) and DVR-330H-S (silver), DVD recorders with a built-in HDD (160 GB). Later in the year, the company launched internal BD/DVD writer with ATAPI connection for Windows PCs. In March 2006, Pioneer reached an agreement to sell all its shares in its subsidiary, Pioneer Precision Machinery to Omron. In the following month, Pioneer introduced two new PureVision high-definition Plasma TVs in Japan. In the same month, the company released worlds first 50-inch 1920 X 1080 HD Plasma monitor employing new "HD P.U.R.E. Black Panel", which creates a 1080p native resolution with more than 2 million pixels on a 50-inch screen.
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Pioneer introduced first AV-integrated HDD-based navigation system In Russian Consumer Market in August 2006. In May 2007, Pioneer introduced eight HDD-based CYBER NAVI car navigation systems in Japan. After two months, Pioneer and Tohoku Pioneer made Tohoku Pioneer a wholly-owned subsidiary of Pioneer through share exchange. In September 2007, Sharp Corporation and Pioneer entered into a business and capital alliance agreement. In the following month, Pioneer and Sonic Solutions, the leader in digital media software, begun a worldwide joint licensing program of patents and other related IP for the encryption and burning of video content to recordable DVD media for playback on DVD players.

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Major Products & Services
MAJOR PRODUCTS & SERVICES
Pioneer produces a range of electronic goods. The companys products and services include: Home electronics: Plasma displays DVD recorders DVD players DVD drives Blu-ray disc players Blu-ray disc drives Audio systems Audio components DJ equipment Telephones Cable equipment TV systems Car electronics: CD players Cassette/tuners Equalizers Power amplifiers Speakers Minidisc players Navigation systems Stereos AV systems Patent licensing: Licensing of patents related to laser optical disc technologies Others: Organic Light-Emitting Diode (OLED) displays Factory automation systems Speaker units Electronics devices and parts
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Business-use AV Systems

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Revenue Analysis

REVENUE ANALYSIS
The company recorded revenues of JPY797,102 million (approximately $6,760.2 million) during the fiscal year ended March 2007, an increase of 5.6% over 2006. For the fiscal year 2007, Japan, the companys largest geographic market, accounted for 34.6% of the total revenues. Pioneer Corporation generates revenues through four business divisions: home electronics division (46.2% of the total revenues during fiscal year 2007), car electronics division (44.9%), patent licensing division (0.6%) and others division (8.3%). Revenues by Division During the fiscal year 2007, the home electronics division recorded revenues of JPY368,622 million (approximately $3,126.3 million), an increase of 3.9% over 2006. The car electronics division recorded revenues of JPY357,809 million (approximately $3,034.6 million) in fiscal year 2007, an increase of 8.3% over 2006. The patent licensing division recorded revenues of JPY4,661 million (approximately $39.5 million) in fiscal year 2007, a decrease of 45.4% over 2006. The others division recorded revenues of JPY66,010 million (approximately $559.8 million) in fiscal year 2007, an increase of 7.8% over 2006. Revenues by Geography Japan, Pioneer Corporations largest geographical market, accounted for 34.6% of the total revenues in the fiscal year 2007. Revenues from Japan reached JPY276,034 million (approximately $2,341 million) in 2007, an increase of 1.9% over 2006. North America accounted for 25.5% of the total revenues in the fiscal year 2007. Revenues from North America reached JPY203,198 million (approximately $1,723.3 million) in 2007, an increase of 3.2% over 2006. Europe accounted for 22.5% of the total revenues in the fiscal year 2007. Revenues from Europe reached JPY179,730 million (approximately $1,524.3 million) in 2007, an increase of 10% over 2006. Other regions accounted for 17.3% of the total revenues in the fiscal year 2007. Revenues from other regions reached JPY138,140 million (approximately $1,171.6 million) in 2007, an increase of 11.4% over 2006.

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Key Employees

KEY EMPLOYEES
Name Tamihiko Sudo Hajime Ishizuka Satoshi Matsumoto Akira Haeno Shinji Yasuda Hideki Okayasu Shunichi Sato Koichi Ueda Yoshio Taniyama Buntarou Nishikawa Yoichi Sato Susumu Kotani Masanori Koshoubu Sumitaka Matsumura Kenji Sato Tsutomu Haga Keiichi Yamauchi Kazumi Kuriyama Toshiyuki Ito Tatsuo Takeuchi Masanori Kurosaki Hiroyuki Mineta Takashige Nakano Seiichiro Matsuki Job Title Executive Vice President and Representative Director Managing Director Managing Director Managing Director Managing Director Director Director Senior Executive Officer Senior Executive Officer (Since: 2006) Senior Executive Officer (Since: 2006) Senior Executive Officer (Since: 2006) Senior Executive Officer Executive Officer Executive Officer xecutive Officer Executive Officer Executive Officer Executive Officer (Since: 2006) Executive Officer (Since: 2006) Executive Officer Executive Officer Executive Officer Executive Officer Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Senior Management Executive Board Executive Board Executive Board Executive Board Non Executive Board Non Executive Board Senior Management Senior Management Board Executive Board Total Annual Comp. -
President and Representative Director Executive Board
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Locations & Subsidiaries
LOCATIONS & SUBSIDIARIES
Pioneer Speakers, Inc 8701 Sempre Viva Rd San Diego CA 91910 USA T: F: Ohmori Plant 5 Omori Nishi Ota ku Tokyo JPN T: Kawagoe Plant Aza Shishimachi Yamada Kawagoe shi Saitama JPN T: Pioneer Europe NV - Moscow Representative Office 2nd Tverskaya-Yamskaya st. Moscow RUS T: 01 Pioneer France S.A. 6, Avenue de Marais F 95816 Argenteuil Cedex FRA T: Pioneer Italy Via Roberto Lepetit Lainate ITA T: 11 Pioneer Electronics (USA) Inc. 2265 E. 220th St. Long Beach CA 90810 USA T: F: Kawasaki Plant 545-57 Ogura Saiwai ku Kawasaki shi Kanagawa JPN T: Pioneer North America Ten Bank Street Suite 1060, White Plains New York NY 10606 USA T: F: Pioneer Belgium Haven 1087 Keetberglaan Melsele BEL T: F: Pioneer Electronics Deutschland Hanns-Martin-Schleyer-Strasse Willich DEU T: 9130 F: 429670 Pioneer Benelux Versterkerstraat AP Almere NLD T: 777

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Pioneer Scandinavia Nyckelvagen 82 Trangsund SWE T: 00
Pioneer UK Pioneer House Hollybush Hill Stoke Poges Slough SL2 4QP GBR T: F: 789 880
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Company View

COMPANY VIEW
A statement by Tamihiko Sudo, President and Representative Director of Pioneer Corporation is given below. The statement has been taken from the companys 2006 annual report: In fiscal 2007, the year ended March 31, 2007, we set forth a new group vision "To become a company that encourages all its members to work as a team, with everyone customer-focused, integrating each ones professionalism in pursuing innovations one after another" and implemented management reforms. By continuing to take various turnaround initiatives, we are working to deliver impressive products to customers and improve the companys earnings structure. Fiscal 2007 in Review Although economic conditions are characterized by steady growth, Pioneer faces an extremely challenging operating climate due to persistent price-based competition in core product fields. In fiscal 2007, the year ended March 31, 2007, consolidated operating revenue rose 5.6% year on year to JPY797.1 billion (US$6,755.1 million). This increase mainly reflected higher sales of car navigation systems and DVD drives and the weaker yen, despite a drop in sales of DVD recorders. Operating income was JPY12.5 billion (US$105.8 million), compared with an operating loss of JPY16.4 billion in the previous fiscal year. This was due chiefly to higher sales, as well as an improved gross profit margin and lower selling, general and administrative expenses due to the benefits of business restructuring measures, and the weaker yen. Meanwhile, Pioneer recorded a net loss of JPY6.8 billion (US$57.3 million) due to impairment losses on property, plant and equipment mainly for plasma displays. However, this result was a significant improvement on the previous fiscal year, when the net loss was JPY85.0 billion mainly due to expenses and losses accompanying business restructuring measures. The operating climate will remain challenging, but the results of a series of business restructuring measures are starting to feed into our earnings. Accordingly, we will step up efforts to improve our earnings structure to accelerate the turnaround. Home Electronics Business In fiscal 2007, the plasma display business faced rapidly falling market prices from the end of 2006. Pioneer responded by taking steps to minimize the drop in its product prices, which led to a large improvement in profitability. One step was to launch products that boast not only superior picture quality, but also innovative design and user friendliness. Another was to conduct marketing activities centered on specialty

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stores that can directly explain Pioneers value proposition to customers mainly in Europe. Pioneer must establish distinctive strategies and policies in order to generate earnings in the flat-panel TV market, where it is difficult to set products apart in terms of their functions and prices are falling. Our basic policy is to convince the markets of the exceptional picture quality of our plasma displays by reinforcing our superior panel technologies while having customers purchase our products based on an understanding of their premium value. Our drive to restore profitability will continue to be guided by this basic policy. The core products will be high-resolution plasma displays that realize a high contrast ratio far surpassing existing standards and that raise the bar in terms of black expression. These products are being promoted worldwide following their launch in North America and Europe in June 2007. Furthermore, we plan on conducting marketing activities globally in an entirely different manner than before to effectively convince the markets of this products value. Efforts will also focus on developing Blu-ray Disc players and home theater systems that bring out even better picture quality from our plasma displays. In these and other ways, we will offer value propositions combining video and audio that are quintessentially Pioneer. In the optical disc business, Pioneer will work to develop Blu-ray Disc players and press ahead with the development of Blu-ray Disc drives. By accelerating the pace of Blu-ray Disc drive development while striking a balance with DVD drives which are currently in stable, strong demand, Pioneer aims to further expand business not only by developing PC drives but also through OEM supply to other companies, external sales and other means. Car Electronics Business In fiscal 2007, the Car Electronics business faced dramatic changes in market conditions, namely contraction in the Japanese, North American, and European consumer markets and rapid growth of portable navigation systems markets in North America and Europe. In response, Pioneer is working to expand the OEM business, reinforce the consumer-market business in Central and South America, Russia and Asian regions, and increase uptake and sales of in-dash car navigation systems in North America and Europe. In the OEM business, Pioneer grew revenues on brisk deliveries to automakers. Measures aimed at driving further business expansion will include offering new proposals to customers by leveraging our product planning capabilities, which have garnered strong support in consumer markets. Establishing production and development systems that satisfy the strict requirements of our customers and ensuring quality are also our priorities.

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In the consumer-market business, sales growth in Central and South America, Russia and Asian regions boosted overall sales, compensating for contraction in Japan, North America and Europe. Accordingly, Pioneer will continue to strengthen business expansion in these growing consumer markets. In the Japanese, North American and European consumer markets, Pioneer will offer products that stand apart from other companies by proposing value-added functions in addition to car audio functions. These functions include compatibility with the Bluetooth wireless communications standard and inter-operability with portable digital audio devices. Turning to car navigation systems, Pioneer will offer new value propositions in Japan, launching a new product with a function that enables information sent by drivers to be shared over an interactive data communications network. In North America and Europe, portable car navigation systems markets are growing rapidly. But Pioneer is steadily growing sales of a DVD car navigation system with built-in audio/video functions at mass-market prices brought to market in March 2007. Using this affordable model as a foothold, we will tackle the challenge of achieving further growth in the in-dash car navigation systems market. Progress with Business Restructuring Since I was appointed president in January 2006, Pioneer has been conducting business restructuring measures to improve the groups entire earnings structure. This has included divesting non-core operations, terminating development of unprofitable product models, and integrating plasma display and other audio/video departments. In fiscal 2007, these measures began producing results. We saw better overall profitability and the integration of departments yielded new value propositions transcending product categories. Furthermore, aiming to sharpen the competitive edge of the Pioneer Groups Car Electronics and speaker businesses in the marketplace, Pioneer plans to realign these operations in conjunction with Tohoku Pioneer Corporation. Regarding the latter, efforts are under way to convert Tohoku Pioneer into a wholly owned subsidiary to ensure rapid and flexible business realignment. Pioneer is also taking a broad range of measures to improve its core strengths as a company through such means as corporate culture and core process reforms. Significant progress has already been made on resolving process-related issues. Looking ahead, we will accelerate the pace of reforms by focusing on further raising the motivation of employees involved in implementing those processes. Pioneers Vision

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I believe that Pioneer offers truly unique value by creating and delivering outstanding, unprecedented forms of value in a manner that satisfies customers. It is also crucial that this process steadily generates earnings that help to drive Pioneers future growth. As I said before, Pioneer will stay true to its group vision: "To become a company that encourages all its members to work as a team, with everyone customer-focused, integrating each ones professionalism in pursuing innovations one after another." Doing so is imperative to restoring Pioneers defining strength of continuously creating and providing new forms of value to customers, as we work to establish a stable management base and improve our earnings structure. Your continued support is vital to making our vision a reality.
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SWOT Analysis

SWOT ANALYSIS
Pioneer is a manufacturer of consumer and commercial electronics. It has a strong R&D capability and is present in almost all the major markets of the world. The companys significant presence in international operations enables the company to take advantage of opportunities in growing markets like Asia. Intense competition, however, threatens to erode the companys market share and profitability.
Strengths R&D capability Global presence Diversified business portfolio Opportunities Expansion Product launch Growing global consumer electronics market Threats Competition New EU directive Patent infringement Weaknesses Fluctuating cash flow form operations

Strengths

R&D capability The company has a strong R&D capability. Its R&D organizational structure consists of R&D centers that are associated with the corporate research and development laboratories, optical disk and systems development center, information and communication development center, PDP development center and verification laboratory. Corporate research and development laboratories are involved in the development of optical disks, devices, displays, information technology, and audio technology. Optical disk and systems development center is involved in the development of optical disc systems and digital AV systems. The Information and Communication Development Center concentrates on developing digital TV units for satellite, terrestrial, and CATV. The PDP Development Center is involved in the development of new technologies to achieve high-performance Plasma Display Panels (PDP). The companys verification laboratory is involved in verification of DVD Logo Verification based on DVD Format Test Specification, DVD Recorder, Drive and Player and DVD Disc. Because of its increased focus the company has been able to launch breakthrough products. Some of its breakthrough products include: Electron beam recorder and Ultra high resolution plasma displays. In addition, the companys expenditure on R&D has increased from JPY55,858 million (approximately $473.7 million) in 2005 to

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JPY59,222 million (approximately $502.2 million) in 2007. The companys strong R&D expertise enables it to produce high quality and innovative products, which help it gain a competitive advantage. Global presence The company operates on a global scale as it is present across the world. Its operations are located at the North America, Europe, Asia and Oceania and Japan. Its largest geographic market, Japan, accounted for 34.6% of its total revenues in fiscal year 2007 which was followed by North America, Europe, and other regions which accounted for 25.5%, 22.5% and 17.3%, respectively in the fiscal year 2007, highlighting the geographic diversity. In addition, the revenues from the companys international operations have been increasing in the last few years. Revenues from North America, Europe and other international markets have increased at a CAGR of 9%, 10% and 15%, respectively during the fiscal period 2005-2007. The companys significant presence in international operations enables the company to take advantage of opportunities in growing markets like Asia. In addition, the revenue increase in mature markets like North America and Europe indicates the increased penetration of the companys products within these markets. This can enhance the companys revenues and brand image. Broad business portfolio The company has a broad business portfolio. It broad business portfolio includes four business divisions: home electronics division, car electronics division, patent licensing division and others division. The home electronics segment offers plasma televisions, digital versatile disc players/recorders/drives, blu-ray disc players/drives, audio systems, telephones, cable television-related machines and peripheral equipment. The car electronics segment offers navigation systems, stereos, audio systems, speakers and peripheral products for automobile uses. The others segment offers electroluminescence (EL) displays, factory automation (FA) equipment, electronic components and commercial audio and video (AV) systems. Broad business portfolio reduces its business risk.

Weaknesses

Fluctuating cash flow form operations The company has recorded fluctuating cash flow form operations during the last few years. Its cash flow form operations has declined from JPY60,378 million (approximately $512.1 million) in fiscal 2004 to JPY19,946 million (approximately

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$169.2 million) in fiscal 2005. IT then increased to reach JPY68,329 million (approximately $579.5 million) in fiscal 2006, however it declined again to reach JPY16,752 million (approximately $142 million) in fiscal 2007. Fluctuating cash flow form operations could adversely affect its working capital and other investment need.

Opportunities

Expansion Pioneer Corporation announced expansion of production capacity for car electronics products at its two major production bases in China and Thailand in February 2007. At these two major production bases, Pioneer will manufacture over 80% of its total car electronics output (currently about 70%) when going into full-scale production at the new facilities. The company would establish a new manufacturing company in an export zone in Shanghai to strengthen productive capacity for export car electronics products. It would also construct its second plant building on the premises of Pioneer Manufacturing (Thailand) to expand the output for car electronics products in Thailand. The new plant will start its operation in late 2007. The companys expansion in these two locations would provide cost benefit thereby improving profit margins. Product launch The company introduced many new products in 2007. Pioneer launched new KURO High-definition plasma televisions in Japan in August 2007. The new, most advanced line of flat-panel televisions includes two 1080p models and two XGA high-definition models, ranging in size from 42-inches to 60-inches diagonal. Pioneer introduced BDP-LX80, a Blu-ray Disc Player, for the Japanese market in August 2007. In addition Pioneer also introduced the first in-dash HDD-based navigation system in the Australian consumer market in May 2007. The new product launch would help to attract new customers. Growing global consumer electronics market The Global Consumer Electronics market generated total revenues of $175.7 billion in 2006, this representing a compound annual growth rate (CAGR) of 7.7% for the period spanning 2002-2006.The performance of the market is forecast to accelerate, with an anticipated CAGR of 5.9% for the 2006-2011 period expected to drive the market to a value of $233.8 billion by the end of 2011. Comparatively, the Asia-Pacific and the US markets is expected to grow at a CAGR of 7.7% and 6.8% respectively over the same period, to reach respective values of $79 billion and $74.6 billion in 2011. Growing global consumer electronics market would enhance the revenue generation opportunity of the company.

Threats

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Competition Pioneer competes with some of the largest companies in the electronics industry. Some of these include Bose, Sony, LG Electronics, Panasonic Mobile Communications, Matsushita Electric Industrial, and Matsushita Electric Works. Not only are these companies are leaders in multiple segments in the electronics industry, they have substantial financial resources. With such high competitive pressure, Pioneer may face additional challenges regarding pricing and the ability to differentiate its products. Intense competition can erode the companys market share and margins. New EU directive The Waste Electrical and Electronic Equipment (WEEE) Directive of the European Union (EU) makes producers of electrical and electronic goods, financially responsible for specified collection, recycling, treatment and disposal of past and future covered products. Although some countries are yet to implement this directive, companies operating in the market became responsible for implementing their responsibilities under the WEEE in 2005. Since Pioneer derives nearly 23% of its revenues from Europe, it could incur sizeable costs and liabilities under this new legislation. Patent infringement The companys business is threatened by patent infringement and various other legal proceedings. In September 2006 it has filed a complaint against Samsung SDI (SDI) and several other Samsung companies in the US District Court for the Eastern District of Texas alleging SDIs infringement of Pioneer patents related to plasma display panel (PDP) technology. Pioneer seeks a court order against enjoining sales of infringing SDI products and compensation for past infringement. The companys involvement in patent infringement cases and litigation would result in the material damage.
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Top Competitors

TOP COMPETITORS
Audiovox Corporation Bose Corporation Harman International Industries Koninklijke Philips Electronics N.V. LG Electronics Inc. Matsushita Electric Industrial Co., Ltd. Panasonic Mobile Communications Co., Ltd. Sharp Corporation Sony Corporation
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