By: Charles LeCompte
April 26th, 2013
Financial, Industry
One interesting development that took place this March in the year-long, ongoing saga of Sharp Corporation’s financial crisis was a report on Bloomberg.com that Sharp, which is desperate to raise funds, turned down an offer from Samsung Electronics for its copier business. “We initially showed interest to take over Sharp’s photocopier operation, but Sharp refused the proposal,” Chenny Kim, a spokesperson for Samsung, told Bloomberg on March 12. A Sharp spokesperson confirmed that Sharp has rejected the Samsung offer, the details of which were not disclosed.
For years, Photizo and others have speculated that second- and third-tier copier players such as Panasonic, Sharp, and Toshiba would eventually have to exit the business as the overall market contracted and the investment required to keep up with the industry’s “Big Four” (Canon, HP, Ricoh, and Xerox) became too burdensome. And, over the years, the roster of copier vendors has indeed contracted: Kyocera absorbed Mita in 2000, Konica and Minolta merged to become Konica Minolta in 2003, Canon absorbed Océ in 2010, and, also in 2010, Panasonic abandoned the A3 business, although it still offers A4 devices.
Yet Sharp has hung on. The mystery is why. In fiscal 2011, Sharp’s copier and printer business generated $1.2 billion in revenue (at current exchange rates), only 4.7 percent of the company’s total revenue. Sharp does not report the profit of its copier and printer business, but it presumably is in the same general range as that of the hard copy operations of other second- and third-tier companies, such as Konica Minolta and Kyocera, which typically report operating margins in the 5 to 10 percent range. (Most, but not all, of the Big Four usually have operating margins above 10 percent, in part as a result of economies of scale.)
It is possible that Sharp’s copier and printer business is actually more profitable than those of its third-tier rivals. The Sharp division that includes the company’s copier and printer business, the Information Equipment division, posted a 10 percent operating margin in 2011. Copiers and printers generate about 40 percent of the division’s revenue, and the rest is produced by what we would guess are lower-margin products such as PCs, calculators, telephones, and displays. If this guess is correct, then Sharp’s copier and printer margins must be higher than the division’s 10 percent average to compensate for the lower-margin products in the mix.
Given Sharp’s desperate need for cash, it might be supposed that the firm would be eager to dispose of its copier business, which is not strategic and faces the certainty of ongoing decline in a contracting and ever-more-competitive industry. With a $2.1 billion bond coming due this fall and bank credit lines expiring in June, Sharp has been forced to look for cash wherever it can. A deal it reached a year ago with Hon Hai for a 9.9 percent stake in the firm has foundered, but Sharp has subsequently persuaded Qualcomm and Samsung to make investments.
The latter deal has raised eyebrows in the industry and even within Sharp because Samsung has long been Sharp’s archrival in the display and TV business and indeed is a primary cause of its current problems. Worse, Samsung is also the archrival of one of Sharp’s best customers, Apple, in the smartphone business, raising the possibility that Sharp could lose a large chunk of revenue as a result of the Samsung alliance. According to the Nikkei news service, Samsung wanted to make a much larger investment of 40 billion yen ($424 million), but Sharp bargained for a smaller stake of 10.3 billion yen ($110 million), which gave Samsung 3 percent of the company, because of “negative sentiment among executives and employees.”
About the only reason we can come up with for Sharp’s refusal to sell its copier business to Samsung is the obvious—Sharp thinks it can find a better deal for the business with another buyer. Samsung is famously tightfisted, and it is highly likely that it made a lowball offer that even desperate Sharp knew it could refuse. It may be that Sharp has been in negotiations with other buyers all along and already knew that it had better options than the Samsung offer. There is little doubt that many if not most other large copier companies would be delighted to absorb Sharp’s copier and printer business if the price were agreeable.
In the grand scheme of things, the significance of the fate of Sharp’s copier and printer business pales in comparison to the impact of the larger alliance between Sharp and Samsung. The deal will make life awkward for companies throughout the world—notably Apple, which now finds itself sourcing crucial iPhone displays from an ally of its biggest nemesis, and Hon Hai, which hoped to use an alliance with Sharp as a weapon to compete more effectively with Samsung. One horrified Taiwanese publication said of Sharp that it is “dancing with a wolf.”
http://photizogroup.com/2013/0...our-copier-division/
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