Mark LaPedus
EE Times
(01/27/2010 6:42 PM EST)
SAN JOSE, Calif. -- An analyst has initiated coverage of Japan's Sharp Corp. with a ''sell'' recommendation.
Sharp's LCD and solar sectors are under pressure, due to the recession and the competition. Its chip unit is ''struggling'' as it exits from the NOR flash business.
''The stock has outperformed the market since the downturn in 2008, doubling in value since the bottom in late 2008,'' said David Motozo Rubenstein, an analyst with MF Global FXA Securities Ltd. in Tokyo, in a report. ''The shares have risen 60 percent in the past year. We believe that the stock will underperform owing to a peak in LCD panel revenue growth, overexposure to the Japan market in LCD and cell phones, and growing risk for subsidy decreases in the solar business.''
Sharp is the largest supplier of large-size LCD panels in Japan. The firm also has numerous information equipment businesses, including digital copiers/printers, data projectors, faxes, and calculators. Solar cells are perceived as the highest growth business for Sharp.
In LCDs, Sharp has approximately 5 percent market share. Sharp's capacity is lower than four panel makers in Korea and Taiwan: Samsung, LG Display, AUO, and CMO, according to the report. Sharp does have a technology lead in substrate generation size with the world's first 10-Gen plant in Sakai, Japan, the report said.
''Sharp uses 70 precent of its panels for its own Aquos TV brand. For the 30 precent of panels sold to other TV makers, many of the panels are exported, which was negatively affected by the yen appreciation in the past half-year,'' according to the report.
''LCD-related profits account for over half of the total company's operating profit in the past three years, of which most was for large-size panels. We believe that the profit growth will slow significantly in the following quarters, and that the current valuation factors in unrealistic LCD profits over the next two years,'' Rubenstein said.
Solar is also under pressure for Sharp. ''Sharp's production is currently about 80 percent crystalline, with the remainder in thin-film. Utilization last quarter was about 100 percent for crystalline and about 60 percent for thin-film. Crystalline has been profitable, whereas thin-film has been in the red,'' he said.
''Sharp's current capacity is 575 MW per year for its crystalline type and only 180 MW per year for thin-film, but Sharp is raising capacity of thin-film type aggressively to about 300 MW per year by March of 2010,'' he said.
In thin-film, Sharp is backing A-Si. ''Sharp and Energy Conversion Devices, the second largest thin-film producer, are targeting A-Si. Applied, the largest semiconductor equipment company, is also backing A-Si. Both Sharp and Energy Conversion Devices have rather high current average costs at over $2.00 per watt, but aim to reduce this to about $1.50 in the next year,'' he said.
''Sharp has a rather high conversion rate for its thinfilm cells, but needs to bring its high cost downwards. Ulvac makes solar cell turn-key equipment, and aims for $1 per watt cost in three years time, down from current Y185 ($2.0) production cost per watt. First Solar can produce at under $1 per watt currently,'' he said.
It is also a bit player in cell phones and semiconductors. Sharp's ''LSIs are mainly semiconductors such as NOR flash memory, CCD/CMOS imagers, LCD chips, and analog ICs. The division has struggled in the past two years,'' he said. ''Sales fell 31 percent last year as price competition damaged revenues and margins.''
Sharp is phasing out of NOR, he said. ''Sharp is shifting focus to CCD which has higher growth prospects in cell phones and cameras. It appears that margins stabilized for the time being,'' he added.
In cell phones, Sharp is strong in Japan. ''Although Sharp's market share of the domestic market 25 percent, we see little growth prospects for the highly saturated domestic market as foreign entrants such as Samsung, Nokia, and Apple take share away from the incumbent handset makers. Further, we view the mobile phone market in China as a large challenge for Sharp given the high barriers to entry in scale and lack of product differentiation,'' he said.
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