Panasonic, the Japanese electronics and white goods group, stunned investors yesterday with a spectacular profits warning as car sales falter around the world and China’s construction boom starts to wilt.

The Osaka-based company, once viewed as practically recession-proof because of its diversity and size, said that net profits for this financial year would be 90 per cent lower than previously claimed. The shares were immediately subjected to a barrage of “sell” recommendations: several analysts believe that its troubles are only just beginning.

The crushing reversal for Panasonic, whose management was “cautiously bullish” on the trading environment a few weeks ago, came 24 hours after its $7 billion (£4.5 billion) negotiations to buy Sanyo were thwarted by Goldman Sachs, which walked out of talks because it considered Panasonic’s offer “unfairly” low.

The sale of television sets, and in particular the extremely large plasma panels in which Panasonic specialises, have slumped and the entire business has been battered by the surge in the yen. Analysts calculate that for every yen the Japanese currency advances against the US dollar, about £20 million is carved out of Panasonic’s bottom line.

Fund managers in Tokyo said the new numbers shattered the illusion that any part of the electronics industry would survive the downturn intact. Panasonic even announced a substantial restructuring programme in a move taken by some as a sign that the company’s much-envied production efficiency may be buckling.

Makoto Uenoyama, a senior Panasonic director, said: “Changes in the business environment over the past few months came with unprecedented intensity and transformed our operational conditions drastically.”

Although many of Panasonic’s problems are external, its shares have enjoyed gentler treatment than those of its rivals. Sony recently hit the market with a 70 per cent cut in its earnings forecasts and was soundly punished. But brokers were prepared to give Panasonic the benefit of the doubt, partly because the company itself was reluctant to downgrade forecasts along with its peers, and partly because it was seen as less exposed to US and European consumer markets.

What Panasonic appears not to have realised earlier, though, was the extent of the downturn in China, where sales of air conditioners followed the country’s white-hot construction boom. Now that building work in many Chinese cities has been dramatically scaled back, Panasonic is finding it harder to sell its products. The problem is the same with its once highly profitable in-car audio and navigation equipment, victim of the world-wide slump in car sales.

Panasonic executives said that the massive downward revision will probably see earnings dribble in at 30 billion yen (£204 million) by the end of March, rather than the Y310 billion previously forecast.

David Gibson, Macquarie’s electronics analyst, said the results highlighted Panasonic’s lack of immunity from the global downturn and could harden the company’s resolve to use mergers and acquisitions to build profitability over the coming months.

Panasonic has made it clear that it is very keen to control Sanyo. The two companies are neighbours in the western city of Osaka, and Sanyo’s battery division and solar-panel operations would fill neatly two large gaps in Panasonic’s business portfolio.

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