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Wednesday, July 11, 2012

Sharp's TV business to remain in the red

Even Hon Hai tieup not seen getting bottom line into black


Staff writer

Despite its much-touted alliance with Taiwan's Hon Hai Precision Industry Group, Sharp Corp. is likely to continue drowning in red ink amid sluggish demand for TVs and persistent high inventories, experts said.

Some analysts say Japan's largest maker of liquid crystal displays may log an even bigger year-on-year quarterly loss for the April-June term after logging its largest-ever net loss — ¥376 billion — for the full year that ended in March as a result of harsh competition, particularly from South Korea.

"The April-June TV and LCD market looked severe, so the company will likely release tough business results for the first quarter," said Hiroki Shibata, an electronics sector analyst at Standard & Poor's Ratings Japan K.K.

The struggling electronics maker plans to announce its first quarter results later this month.

In addition to dwindling global demand stemming partially from the European financial crisis, Japanese manufacturers' sales have also been hit by global competition and the high yen.

Sharp is losing money as its foreign rivals, including Samsung Electronics Co. of South Korea, undercut its main product lines of liquid crystal displays, TVs and other consumer electronics.

According to the Japan Electronics and Information Technology Industries Association, domestic shipments of flat TVs fell by more than 70 percent in May from a year earlier to 409,000 units, marking the 10th consecutive month of decline.

"Given delays in curtailing LCD panel inventories, we now look for a wider loss than before, so the bad news is not yet out of the way," Yuji Fujimori, a consumer electronics analyst for Barclays Securities Japan Ltd., said in a recent report.

Fujimori added that he now predicts Sharp will log a ¥60 billion operating loss for the quarter, against his previous projection of a ¥48 billion loss.

Another concern is whether Sharp's capital tieup with Hon Hai, known for its Foxconn brand, will go forward as scheduled.

Sharp said June 28 the Hon Hai group had invested ¥17.04 billion in its loss-making plant in Sakai, Osaka Prefecture. The amount represents just 25 percent of the initially planned investment, as it was restrained by Taiwan's foreign currency regulations.

Sharp said it will receive the remaining investment later but declined to specify when. Sharp also did not release a timetable for Hon Hai's planned acquisition of a 9.9 percent stake in the firm itself.

Experts have speculated that Hon Hai is reluctant to buy into Sharp at a per-share price of ¥550 as planned because the stock is now much lower. On Tuesday, Sharp closed at ¥362 after briefly falling to a low of ¥360.

Analysts were also concerned by reports that Hon Hai's chairman and founder, Terry Gou, wants to hike the group's stake in Sharp, while the Japanese firm has said it will not offer a larger stake.

Sharp's fortunes have declined over the past several years. With LCD panels driving its growth, the firm built two large-scale plants in Kameyama, Mie Prefecture, in 2004 and 2006, and started producing large LCDs for flat TVs. It also opened its largest plant, the facility in Sakai, in 2009 to produce 10th-generation panels. Global demand, however, had weakened by that time and inventory piled up.

Japanese manufacturers losing money making semiconductors and televisions have been feeling the need to enter into overseas capital alliances, analysts said.

Last October, Haier Group Co. of China bought Panasonic Corp. subsidiary Sanyo Electric Co.'s washing machine and refrigerator operations in Japan and Southeast Asia. Last July, NEC Corp. and China's Lenovo Group Ltd. launched a joint venture to target Japan's personal computer market.

But analysts say some alliances are not running smoothly because the Japanese partners are reluctant to relinquish their technological edge to their new allies, which in turn covet such technology.

"Especially when the alliance involves (Japanese firms') core business, friction often occurs over the direction of business," Shibata of S&P said.



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