Sharp to tap Samsung, banks for survival after $5.4 billion loss

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TOKYO (Reuters) - Japanese display maker Sharp Corp, a supplier to Apple Inc, will aim to boost sales to the iPhone maker's rival Samsung Electronics Co under a three-year rehabilitation roadmap after posting a worse-than-expected $5.4 billion net loss in the last financial year.

The business plan, released on Tuesday, will also lean on banks for another 150 billion yen ($1.5 billion ) in funds after they saved it last year from failure, with a 200 billion yen convertible bond falling due in September.
"For Sharp, the way forward is to forge various alliances to generate new opportunities," said Kozo Takahashi, who was named president on Tuesday after his predecessor held the post for barely a year.

Takahashi said Sharp, which took big writeoffs last year after a focus on making screens for its own struggling TV business left it with excess capacity, will double to two-thirds the portion of panels produced for customers such as Samsung and Apple.

He added that Sharp would look at expanding cooperation with Samsung in technology for small screens used in smartphones and other mobile devices.

Sharp forecast an 80 billion yen operating profit for the year to next March 31, exceeding the 52.9 billion yen average estimate of 13 analysts surveyed by Thomson Reuters I/B/E/S. That follows a 146.27 billion yen operating loss in the business year just ended and a 545.35 billion yen net loss.

It will target an annual operating profit of 150 billion yen by the year to March 2016, in line with the 100 billion to 200 billion yen results during the five years to March 2008, before its TV and display businesses were hit by overcapacity, a strong yen and competition from Korean and Taiwanese rivals.

Sharp was rescued last October by 360 billion yen in emergency loans from Mizuho Financial Group, Mitsubishi Financial Group and other lenders. In return, it had to mortgage offices and factories in Japan, including one that makes screens for Apple's iPad and its latest iPhone.

The company also agreed to trim its workforce by 10,000 and seek buyers for overseas assets, including TV assembly plants in China, Malaysia and Mexico.

Sharp said on Tuesday that Mizuho and Mitsubishi UFJ would each nominate an executive to serve on its board and in its senior management.

SOFTENING GROWTH

A key challenge for Sharp's recovery, however, is keeping its factories busy enough to earn profits that will satisfy its creditors despite slowing growth in its business making screens for Apple's iPads and iPhones.

Analysts project annual profit growth at Apple to average less than 5 percent over the next decade, compared with an average of 60 percent over the past five years.

In January, Sharp had to curtail production of 9.7-inch iPad screens, hurting output levels and threatening its recovery in profitability. The Japanese company is preparing to begin large-scale production next month of screens for Apple's next iPhone model, sources familiar with the matter said.

In a March agreement with Samsung Electronics that provided cash-strapped Sharp 10.4 billion yen in capital in return for a 3 percent stake, Japan's leading liquid crystal display fabricator also promised to supply small display screens to the world's biggest maker of mobile phones.

Takahashi said orders from Samsung helped to maintain capacity rates at one of its small-screen plants which, according to industry sources, also produces iPad screens.

He also saw complementary areas in technology, where Samsung has been at the cutting edge of ultra-thin organic light-emitting diode (OLED) screens while Sharp is strong on power-saving IGZO technology.

"Samsung has OLED and we have IGZO and we are mulling cooperation there, although nothing concrete is yet on the table," he said.
Sharp's shares have staged a turnaround since sinking to their lowest in more than three decades last October while it struggled with debt and sought a bailout.

Since mid-November, its share price has more than tripled, compared with a 70 percent rise in Japan's benchmark Nikkei average. On Tuesday, prior to the earnings announcement, Sharp climbed 4.9 percent to 531 yen, its highest close in more than a year.

But the company has a long way to recover, with its shareholders' equity ratio whittled down to 6 percent at the end of March from 9.6 percent at end-December and 23.9 percent at the end of March last year.

Tetsuo Onishi, representative director in charge of finance, told reporters that the company's three-year plan aimed to get the ratio back to the 15 to 20 percent range, which it would need to recapture the investment-grade credit rating it lost as its financial situation deteriorated.

($1 = 101.7800 Japanese yen)
(Editing by Edmund Klamann)

5/14/1310:13 PM

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Japan's Sharp posts record annual loss
(AFP) – 18 hours ago
TOKYO — Japanese electronics giant Sharp on Tuesday posted a record annual loss for the second year in a row, and announced plans to replace its current chief after just one year on the job.
The maker of Aquos-brand electronics reported a net loss of 545.3 billion yen ($5.4 billion) in the year to March, its worst-ever shortfall after losing 376 billion yen in the previous year.
However, Sharp said it expects to return to profitability in the current fiscal year.
"We apologise for having to book huge losses for two straight years," Sharp Executive Director Tetsuo Onishi said after the disappointing figures were published.
Sharp, which is undergoing a massive restructuring, said company veteran Kozo Takahashi would become its new president, replacing Takashi Okuda who was set to become chairman, a title that often precedes retirement in big Japanese companies. Okuda was appointed to the top job in April last year.
The changes are part of a wider management shuffle at the firm which said the record net loss was largely due to charges stemming from its wide-ranging overhaul.
However problems in its long-suffering television business showed few signs of abating as sales "fell drastically", it said.
Sharp blamed the downturn on sluggish demand at home and in key market China, where a consumer boycott of Japanese brands erupted last year over a territorial spat between Beijing and Tokyo.
"Mobile phone sales also declined, due mainly to supply shortages of key components in the first half of this fiscal year and severe competition with overseas manufacturers," Sharp said.
On a more positive note, demand for Sharp's liquid crystal display panels jumped on big demand for small and medium-sized LCDs used in smartphones and tablets, it said.
Sales in the latest period were 2.48 trillion yen, up from 2.46 trillion a year earlier, Sharp said, adding that it was on track to eke out a small 5.0 billion yen net profit in the current fiscal year to March 2014.
But "we anticipate the overall business environment will remain unpredictable", it added.
Koki Shiraishi, an analyst with SMBC Nikko Securities, said Sharp won't be able to turn itself around without rolling out more "competitive products".
"Sharp still needs further restructuring, which will haunt the company at a time when few companies can expect big sales given the current business conditions," Shiraishi added.
The results cap off another tough earnings season for a company which last year warned over its survival and put up its Osaka headquarters as collateral to land crucial bank loans.
Sharp has since backed off from bleak talk of the century-old firm going under as it embarks on a painful restructuring including thousands of job cuts and slashing wages from the factory floor to the boardroom.
It has also inked capital tie-up deals with foreign firms including South Korea's Samsung Electronics and US-based Qualcomm.
Japan's major electronics firms, including Sharp rivals Sony and Panasonic, have been hammered by credit rating downgrades and record losses as they struggled in the low-margin TV business where foreign rivals have proved tough competition.
Slowing demand in key export markets, strategic mistakes and a strong yen have also pounded their finances.
But a tumble in the Japanese currency in recent months has helped Japan's exporters, making their products move competitive overseas and boosting the value of repatriated foreign income, inflating their bottom line.
Sony last week posted a full-year profit after four years in the red, while Panasonic logged an eye-watering 754.25 billion yen net loss for the same period, but pledged to turn a profit over the next year.
Sharp's Tokyo-listed shares closed up 4.94 percent at 531 yen on Tuesday with its results released after markets closed.

5/14/1310:14 PM

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