Panasonic Corp plans further cost cuts to compete with South Korean rivals including Samsung, after stiff price competition in televisions and a stronger yen hurt its quarterly profit.

Higher material costs also contributed to the 5.6 percent fall in third-quarter earnings, offsetting help from a Japanese government incentive scheme during the crucial year-end period.

Panasonic, the world's fourth-largest television maker after Samsung, LG Electronics and Sony Corp, is struggling to gain a foothold in smartphones and tablets, a market dominated by Apple Inc and with Samsung emerging as a key rival.

The yen gets stronger and stronger and competition with Korean and Chinese makers will get fiercer and fiercer, Managing Director Makoto Uenoyama told a news conference.

From October onwards, we faced substantial price falls (for TV sets) all over the world, with competition from Samsung and LG, he said, adding that the TV business made a loss in October-December.

Uenoyama said the company had measures in place from last month to cut manufacturing cost of new TV models by using a modular production system in Asian plants and using more parts made in Asia.

Investors are eyeing Panasonic's ability to restructure quickly and show benefits after its buyout of subsidiary Sanyo Electric. The deal is aimed at sharpening the company's focus on environmental technologies such as solar power systems and rechargeable batteries, where Japanese makers believe they retain an advantage over Korean rivals.

Panasonic is expected to provide an update on the integration plans later this year.

It's difficult to evaluate earnings for Panasonic as the company is still in a phase of transition after its buyout of Sanyo Electric, said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments.

Its long-term strategy is firm as Panasonic will focus more on batteries, but it looks hard for Panasonic to make big profits as its business is still weighed heavily in consumer electronics, he said, adding that heated competition in the flat-TV business is hitting all players.

Panasonic reported an operating profit of 95.36 billion yen ($1.17 billion) for October-December, lagging the average forecast of 109.1 billion yen from a poll of six analysts by Thomson Reuters I/B/E/S.

Japanese consumers rushed to buy home appliances and electronics in November, ahead of cutbacks to a government scheme that offered incentives for buying environment-friendly electronics. Panasonic's Uenoyama said domestic sales of home appliances had slumped in December following a peak the previous month, but that he expected a gradual recovery.

The incentives are set to be removed in March, potentially further weakening consumer appetite for big-ticket goods.

The maker of Viera TVs and Lumix cameras left its full-year profit outlook at 310 billion yen, compared with the consensus of 328 billion yen in a poll of 20 analysts. Operating profit for the year to March 2010 was 190 billion yen.

Panasonic shares have fallen nearly 30 percent from a 14-month high of 1,585 yen reached in January last year, compared with a 5 percent fall in the Nikkei average.

(Additional reporting by Chikafumi Hodo and Christine Chan; Editing by Michael Watson and Vinu Pilakkot)

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