Sharp Says It Faces Material Doubt on Survival
By Mariko Yasu and Naoko Fujimura - Nov 1, 2012 4:01 PM GMT+0100
Sharp Corp., (6753), the worlds worst- performing major stock, said there was material doubt about its ability to survive after forecasting a record $5.6 billion full-year loss on falling demand for its display panels.
The net loss will probably be 450 billion yen in the year ending March 31, the Osaka-based TV maker said in a statement yesterday, scrapping its earlier projection for a 250 billion- yen loss. The new forecast compares with the 296 billion-yen loss average of 17 analyst estimates compiled by Bloomberg.
Sharp has failed to win a planned 67 billion-yen investment from Taiwans Foxconn Technology Group and has had difficulty selling commercial paper as it burns through cash. The company said its loss for the six months ended Sept. 30 was huge, stemming from falling prices for liquid-crystal-display panels, delays at an LCD factory and declining sales in Japan and China. The companys warning echoes that made by chipmaker Elpida Memory Inc. before it filed for bankruptcy in February.
Sharp is in a desperate situation as it tries to deal with short-term funding problems, said Ichiro Takamatsu, a fund manager at Tokyo-based Bayview Asset Management, which oversees 150 billion yen. It doesnt have a long-term vision except for its plan to sell more small- and mid-sized LCDs.
Foxconn Partnership
Sharp follows Panasonic Corp. (6752) in predicting losses worse than analysts estimated after losing ground to Samsung Electronics Co. (005930) in TVs. In contrast, Sony Corp. (6758) reiterated its forecast for a first annual profit in five years after slashing costs, exiting panel ventures and trimming its TV lineup.
Sharp is in circumstances in which material doubt about its assumed going concern is found, the company said in a statement to the Tokyo Stock Exchange.
The companys turnaround plan includes seeking voluntary retirements, cutting salaries, selling assets and reducing capital investments, it said. Japans largest maker of liquid- crystal displays also is considering several partnerships as talks with Foxconn continue, President Takashi Okuda said.
I seriously take to heart that we had to add that comment, Okuda said. We will revive our earnings and trust from investors as soon as possible. We will show that with a result.
Sharp fell 1.7 percent to 169 yen at the close in Tokyo trading before the announcement. The stock has plunged 75 percent this year, the worst performer among more than 1,600 companies in the MSCI World (MXWO) Index.
Sony, Panasonic
Panasonic, Japans second-biggest TV maker, said Oct. 31 it expected a 765 billion-yen full-year net loss, or 30 times bigger than analysts had estimated, citing restructuring costs and falling demand for its products. Osaka-based Panasonic said it wont pay a dividend for the first time since 1950 because of an urgent need to improve its financial position.
Sony, Japans biggest consumer-electronics exporter, kept its full-year net-income forecast unchanged at 20 billion yen even as it unexpectedly posted a seventh straight quarterly loss on slumping demand for Bravia TVs and Cyber-shot cameras.
Operating loss at the home-entertainment unit, which includes the TV operations, shrank to 15.8 billion yen in the quarter ended Sept. 30 compared with 41.8 billion yen a year earlier, Sony said in a statement.
The company is ahead of its plan to turn around the TV business, Chief Executive Officer Kazuo Hirai said in October. Tokyo-based Sony has halved the number of Bravia models sold in the U.S. and Japan to a combined 39 from 79.
Drastic Measures
Sharp widened its full-year forecast for operating loss for LCDs to 132 billion yen from 105 billion yen, saying it took a 53.5 billion-yen writedown on its large LCD inventory and sales of small LCDs fell below estimates.
Global TV demand is expected to remain little changed in 2013 after shipments of all TV types declined more than 4 percent this year, researcher DisplaySearch said.
Sharp also posted a 61 billion-yen charge on deferred tax assets and took a 30.1 billion-yen writedown on equipment for solar-panel production.
Sharp must take drastic measures or else banks will give up on it, said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm.
Elpida Bankruptcy
Elpida filed for bankruptcy after losing money for five quarters. The company had liabilities of 448 billion yen after falling prices for its computer-memory chips and a stronger yen eroded earnings and left it unable to pay debt.
Elpida said Feb. 14 it wasnt making enough progress in obtaining needed financing, and therefore, material uncertainty about its assumed going concern is found. That note was added to financial results for the previous quarter.
Sharp, the century-old inventor of mechanical pencils, has put up properties, including its headquarters, as collateral to raise funds. Sharp turned to its main banks Mizuho Financial Group Inc. (8411) and Mitsubishi UFJ Financial Group Inc. as it struggled to refinance debt after Standard & Poors and Moodys Investors Service cut its credit ratings to junk.
The banks contributed to a total of about 360 billion yen in loans by the end of September, Sharp said.
The electronics maker has been renegotiating terms for a proposed stake sale to Taipei-based Foxconn after widening its full-year loss forecast eightfold in August, triggering a slide in its share price. Foxconn agreed in March to invest 67 billion yen for a 9.9 percent stake in Sharp at 550 yen a share.
Sharp assumes a deal can be reached, Okuda said.
Sharp sold a stake in an LCD factory in central Japan to Foxconn founder Terry Gou earlier this year to jointly run the facility, considered the most advanced in the industry.
Shipments of smartphone panels were delayed after a defect was found during testing, Sharp said in August. The company also said its plant making displays for tablet computers was underutilized.
The companys financial situation is getting increasingly severe, said Keita Wakabayashi, a Tokyo-based analyst at Mito Securities Co. Sharp will have difficulties trying to improve its finances and find partners at the same time.
