“Sharp has fallen on hard times again,” declared an at times shocking report in the Nikkei this week. The statement comes in the wake of the company announcing on Tuesday that, rather than their forecast of a profit for the current fiscal year, the company will in fact book a net loss. And this disappointing news will almost certainly drive the call for a much more drastic restructuring than has been accomplished in the past – with the company reportedly considering pulling out of the television business in North America altogether.
See more on this stunning reversal in Sharp’s fortunes…
Sharp Corp. announced on Tuesday that it must recast its fiscal forecast in the wake of deteriorating business fundamentals. Previously, the company had forecast an operating profit of ¥100 billion ($852 million) and a net profit of ¥30 billion ($255 million) for the fiscal year ending March 31, 2015. But now the company says it must cut the operating profit forecast by 50% to ¥50 billion and the company now projects a net loss of about ¥30 billion.
This is, to say the least, a dramatic reversal from where the company had anticipated being at this point in their fiscal year…and the company pegged the poor performance to weak LCD panel sales – and a weaker yen. Interestingly, the company maintained its overall sales forecast at ¥2.9 trillion ($24.7 billion).
First net loss is two years…
This is the first net loss for the company in two years and it endangers their covenants with the two major Japanese banks that had supported the company through its last restructuring – Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ. Sharp needs these banks to continue their financial support – but most observers expect the banks to demand a business restructuring…and a restructuring far more draconian that what’s been attempted in the past.
Sharp President Kozo Takahashi appears ready to take those much more drastic steps. The company, he told the press in Japan, will throw out their current plan and begin a new one that will be completed no later than May. The new plan, he promises, will include “radical reforms” that will be executed with “unshakeable determination.”
Radical reforms being considered…
These radical reforms being considered include dropping out of the TV business in North America – perhaps to license the brand…much like Toshiba has decided to do as we reported just days ago. Sharp already took this step in Europe last year and the plan reportedly went off without a hitch.
But the company isn’t resting on its laurels while its management draws up a restructured restructuring program…it has already announced that it is cutting the pay of Sharp executives by 55%, beginning this month. The company is also said to be shopping its television manufacturing plant in Mexico that produces 200,000 TVs per month and employs about 1,500 workers.
Big number of models, small share of the market…
Sharp is said to have sold about 900,000 TVs in North America in their last fiscal year. This amount is about 10% of all the sets the company sold worldwide. The company expects overall revenues of ¥400 billion ($3.4 billion) in TV sales this year.
Sharp, according to the Nikkei, misread the direction of the TV market. The company’s North American operations have failed to increase their penetration, even though they field a bloated line of more than 30 models. Surprisingly (to us at least), Sharp is said to only hold about 2% of the North American market – a fact that makes it very difficult for the company to accept the losses being generated here.
The name is valuable…
In weighing just what path to take at this point, many executives at Sharp are buoyed by the fact that they believe that the Sharp name is a highly valued property. This belief tends to support the conclusion that a good revenue can be generated by a licensing agreement with the right partner.
Sharp already cut a licensing deal with Best Buy last year, making the decision to abandon the smaller screen market to focus on larger – and presumably more profitable – screen sizes. That program is thought to be working well…perhaps setting the stage for a bigger deal with a manufacturer who would take over the entire market for them.
See more on Sharp here: www.sharpusa.com.