By Nathan Layne, Reuters

TOKYO — Matsushita Electric and Sharp are likely to forecast slower profit growth when they report earnings this week, underscoring an increasingly tough operating environment for Japan`s top consumer electronics makers.

Panasonic products maker Matsushita and Sharp have outshone rival Sony in the past year, largely because they are more efficient at producing hot-selling items such as DVD recorders and flat TVs.

But analysts say the new business year will be challenging for all the firms as they are unlikely to come up with new products that really catch consumers` attention, and will have to do without a big event like the Olympics to drive demand.

South Korean rivals Samsung Electronics and LG Electronics both posted weak earnings for the latest quarter to March 31, hit by intense price competition in home appliances and flat panel TVs.

``Makers of finished products in the consumer electronics industry will continue to face severe pricing pressure and won`t have the Olympics like they had last year,`` said Hideo Ueki, chief investment officer at UBS Global Asset Management Japan.

``Sales of liquid crystal display and plasma televisions should continue to expand strongly but I don`t expect the industry to come up with any products that are really fresh or exciting. It looks like it will be a pretty tough year.``

The market consensus says Matsushita will record a group operating profit of 345 billion yen ($3.23 billion) in the current business year started April 1, according to a poll of 19 analysts by Reuters Estimates.

Based on Matsushita`s estimate for a 300 billion yen operating profit for 2004/05, the consensus forecast would represent growth of 15%, well below the 53% jump in profit estimated for the business year ended last month.

Analysts also expect Sharp, the world`s top maker of liquid crystal display (LCD) televisions, to give a relatively conservative outlook amid concerns about falling prices for LCD panels used in mobile devices and TVs, and LCD TVs themselves.

Sharp kicks off the sector`s earnings on Tuesday. Analysts expect it to come in a bit above its 2004/05 estimate for an operating profit of 150 billion yen, up 23% year-on-year. The consensus for 2005/06 is a profit of 166 billion yen.

``With LCD panel prices expected to continue declining, the key for Sharp will be just how much it can lower production costs,`` Shinko Securities analyst Tetsuya Furumoto said.

Restructuring eyed

Investors will be on the lookout for further weakness in Sony`s core electronics division after rival Victor Co. of Japan (JVC) warned earlier this month that it lost money in 2004/05 because of tumbling prices and product launch delays.

Goldman Sachs analyst Yuji Fujimori estimates that Sony likely missed its group operating profit estimate for the past business year of 110 billion yen by about 12 billion yen, but said that such a shortfall would not catch investors off guard.

``The emergence of negatives regarding the electronics business should not constitute further surprises, and we believe attention should focus on medium-term potential in the entertainment business,`` Fujimori wrote in a note to clients.

Analysts on average expect Sony`s operating profit to jump to 164 billion yen this business year, with earnings in its electronics division boosted by the start of shipments from a LCD venture with Samsung and a fall in development costs for chips.

But Sony`s profits could vary widely depending on the amount of restructuring costs. Investors will therefore be watching carefully to see if Sony and its new management team unveil or at least hint at the possibility of new restructuring steps.

Sony said in March that Howard Stringer, currently the head of its U.S. operations, would become its new chief executive as part of a major management overhaul to be be put to shareholders in June. Ryoji Chubachi was named the next president.

A month later Sanyo Electric unveiled a new management team of its own. Japan`s third-largest consumer electronics maker is expected to report a record net loss of 121 billion yen for 2004/05 due to earthquake damage at a chip factory and sluggish sales of digital cameras and mobile phones.

Credit Suisse First Boston analyst Koya Tabata said in a recent note that Sanyo`s new management would likely implement a restructuring plan that would involve slashing jobs and lead to extraordinary losses in 2005/06 of 50 to 60 billion yen.

Investors are also on the lookout for additional restructuring measures at Pioneer, which is estimating a group net loss of 8 billion yen in 2004/05 due to tumbling prices of DVD recorders, audio equipment and plasma TVs.

Last month Pioneer said it would cut 5% of its group workforce and shutter a quarter of its factories, but many analysts said the reform plan lacked bite and have called for further steps such as joining an alliance in plasma between Matsushita and Hitachi Ltd. to lower costs.

``Consumers still believe that flat panel TV prices will keep coming down,`` said Standard & Poor`s equity analyst John Yang. ``The big question is how are these companies going to avoid getting stuck in this downward spiral.``

Sharp is first to report in the sector on Tuesday, Jan. 26., followed by Sony, Sanyo, JVC and Pioneer on Wednesday. Matsushita reports on Thursday