Sharp admits 'doubt' on survival

A customer checks LCD television sets made by Japanese electronics maker Sharp on November 1.

Story highlights

  • Sharp has admitted there is "material doubt" about its ability to stay in business
  • Comes as it warned of a second year of record losses and deepening Japan gloom
  • The losses are blamed on failed investments in liquid-crystal display manufacturing
  • Came a day after Panasonic stunned investors with a second consecutive $10B loss

Sharp has admitted there is "material doubt" about its ability to stay in business as it warned of a second year of record losses, deepening the gloom surrounding Japan's once dominant consumer electronics industry.

The century-old company said it expected to end the financial year to March with a net loss of Y450bn ($5.6bn), worse than the Y250bn loss it had predicted in August. Last year it lost Y396bn. The losses are blamed on failed investments in liquid-crystal display manufacturing.

The warning came a day after Panasonic stunned investors by projecting a second consecutive $10bn loss. Panasonic's share price dropped a further 19 per cent on Thursday.

Sharp and Panasonic, along with Sony, are the most consumer-focused of Japan's large technology companies. All three have suffered as prices for flatscreen televisions and other household items plunged globally.

A strong yen and competition from lower-cost manufacturers elsewhere in Asia have turned the products that once underpinned their success into financial millstones. Last year, the three groups suffered a combined net loss of Y1.6tn -- a figure that Sharp and Panasonic will come close to matching between them this year.

"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.

Funding problems arising from the ballooning losses have forced Sharp to mortgage its headquarters building and seek a rescue investment from Terry Gou, the Taiwanese billionaire who founded Hon Hai Precision Industry, the contract manufacturer of Apple iPhones and Sony PlayStation video game consoles.

A deal with Mr Gou has been in limbo since it was tentatively agreed in March, as the two sides haggle over terms. Mr Gou had agreed to pay Y67bn for a 10 per cent stake in Sharp and partial ownership of an underused display factory near Osaka, but has been pushing Sharp to lower the price to reflect a precipitous decline in the value of its shares.

Sharp's stock price has fallen 75 per cent this year, more than that of any other company on the 1,600-member MSCI global index. In addition to mortgaging its headquarters, Sharp is selling several overseas factories and cutting jobs and wages -- the first retrenchment of its kind for the company since 1950.

In September, Sharp secured Y360bn in loan extensions, which the company says will be enough to fund its operations until at least next June, when the loans come due. By then, Sharp says its restructuring measures will have borne fruit and it will be generating a stable flow of cash.

Its position remains precarious enough, however, that analysts at Moody's and Standard & Poor's have cut its credit rating to junk.

In the six months to September, Sharp said it made a net loss of Y387.5bn as a result of rising restructuring costs and falling demand for LCD televisions. It booked Y84.4bn of extraordinary charges as it wrote off the value of surplus display inventory and pulled out of solar panel manufacturing -- another area where it has struggled to earn a profit -- in the US and Europe.

The company also wrote off Y61bn of so-called deferred tax assets -- corporate-tax credits it could redeem if it returned to profit, a prospect that now looks more distant.

Sony bucked the trend of worsening forecasts on Thursday by sticking with its projection for a narrow Y20bn net profit this year, a result that would break four consecutive years of losses. But it will have to improve its performance in the second half to achieve the target, after posting its seventh consecutive loss for the July-to-September quarter.

Panasonic said on Wednesday that it expected to end the financial year with a net loss of Y765bn, a reversal of its previous forecast for a Y50bn profit. It will not pay a dividend this year for the first time since 1950.

Shares in Sony fell 4.1 per cent, while Sharp shed 1.7 per cent ahead of its results.