Last Friday, shares of 100-year-old Sharp Corporation dropped almost 30 percent as investor bailed out on the long-time manufacturer of LCD panels and televisions. The day before, Sharp had warned investors of a possible $1.28 billion loss for the current fiscal year, which ends next March.
Previously, Sharp had announced that it would cut 5,000 jobs worldwide. At the company’s U.S. corporate headquarters, the twelve-person marketing and advertising department was laid off recently as the company shifts to more directed M&A efforts within each product segment.
This news may come as a surprise to some, but the signs have been there for several years. As I’ve detailed in this space previously, Sharp’s worldwide market share in LCD TVs has dwindled from about 21% in 2005 to less than 8% in 2011, and the vaunted Quattron four-color LCD TVs went over like a lead balloon.
To make matters worse, Sharp invested nearly $4.3B in a new Gen 10 LCD fab in Sakai City a few years back, one in which Sony was also going to be a 34% partner and which would make the largest LCD panel ‘cuts’ in the world.
But Sony, beset by its own continued losses in the television business, pulled out of the joint venture after capping its investment at 7%. This forced Sharp to look elsewhere for sources of funding, and this past June, it found a ready, willing, and able investor in Taiwan-based Hon Hai Precision, the parent company of Foxconn.
Under the terms of the agreement, Hon Hai would have purchased 46% of the Sakai output and also take a 9.9% stake in Sharp Corporation, making it the company’s largest investor. The price tag for that 46% share? About 20 cents on the dollar of what Sharp originally paid to build Sakai, a ‘fire sale’ by any measure.
Trouble is; the deal with Hon Hai hasn’t gone through yet. And it may not, now that Sharp’s share price has dropped to a 36-year low, according to a Reuters story. The company’s market capitalization is now just $2.72B.
To make matters worse, Moody’s Investors Service downgraded Sharp’s debt rating to Prime-3, which is the lowest possible investment grade. The reasons cited included “…increasing its (Sharp’s) dependence on external sources for liquidity.”
How does that affect Hon Hai? According to the story, Hon Hai does not have an obligation to buy Sharp shares at the price negotiated in June. Sharp acknowledges this and the deal may still take place, but at a substantially reduced cost.
Enough with the numbers. I’ve said before that we are finally seeing the sunset of the Japanese television industry, just as the U.S. TV industry faded into oblivion in the 1980s. Sony, Panasonic, and Sharp combined expect to sell about 10 million fewer TVs this year, and that will only continue the red ink.
Is there an ‘out’ for Sharp? Probably not. What’s more likely to happen is unprecedented, but would not surprise me: Sharp would eventually be acquired in whole by a Chinese manufacturing giant, and Hon Hai is as good a candidate as any.
Would the Japanese government allow such an unprecedented sale to go through? Think about it: What other choice would they have? If Sharp eventually went bankrupt, thousands of people would be out of work and numerous fabs and factories would be shut down.
This is clearly a new era of economic power shifting across the Sea of Japan. Institutional investors have been suggesting lately that Sony may be worth more broken up than the sum of its parts (including the money-losing TV operation, which would probably be jettisoned in any such acquisition).
Panasonic, which shed much red ink in the past fiscal year due to its purchase of Sanyo, is probably in better shape because of its diversified energy operations. But it, too, will have to down-size its consumer electronics and television operations to restore profitability. (Prediction: The first business unit to go will be the plasma TV operation, as plasma market share continues to dwindle.)
These are indeed desperate times for Japanese CE manufacturers. But they haven’t been paying attention to the changing landscape, and they’ve played the ‘wishing will make it so’ game with disastrous results.
Yuuki Sakurai, CEO of Fukoku Capital Management, the asset management unit of Japan’s Fukoku Mutual Life Insurance, was quoted in the Reuters story as saying, “Japan’s TV makers are just relying on their past legacies. As long as they depend on TV, they will face tough competition.”
And there you have it. How the mighty have fallen…
Posted by Pete Putman, August 13, 2012 7:34 AM
About Pete PutmanPeter Putman is the president of ROAM Consulting L.L.C. His company provides training, marketing communications, and product testing/development services to manufacturers, dealers, and end-users of displays, display interfaces, and related products.
Pete edits and publishes HDTVexpert.com, a Web blog focused on digital TV, HDTV, and display technologies. He is also a columnist for Pro AV magazine, the leading trade publication for commercial AV systems integrators.