TV maker Sharp and digital giant Sony tell grim financial tales
Published 01/11/2012 | 09:22
STRUGGLING Japanese TV maker Sharp Corp warned it might not be able to survive on its own, as it almost doubled its full-year net loss forecast to $5.6 billion, and said it was considering alliances with other companies.
"Our corporate group has booked massive second-quarter net and operating losses ... and now see a serious negative operating cash flow. This raises serious doubts about (our ability) to continue as a going concern," it said in a statement.
Bigger Japanese rival Sony Corp, which blazed a trail in the early 1980s with its Walkman portable music players, made a small operating profit in July-September and kept its forecast for a full-year profit of $1.63 billion.
But the maker of Bravia TVs, Vaio laptops and PlayStation game consoles said it expects to sell fewer of its hand-held PSP and Vita consoles this year - 10 million - than it previously estimated. It also cut its forecasts for sales of its TV sets - to 14.5 million - and compact digital cameras - to 16 million - but kept its PlayStation home console sales estimate at 16 million.
The grim tale from brands that led a consumer electronics age from the 1970s came a day after Panasonic Corp said it will lose almost $10 billion this business year as it cleans its house of risky assets - writing down billions of dollars of goodwill and assets in its mobile and energy units and preparing for more restructuring that is likely to see it shift away from money-losing TVs and other consumer electronics.
The maker of Viera brand TVs, which has shed around 36,000 jobs, also skipped its dividend for the first time in more than six decades and cut its full-year TV sales forecast by more than a quarter to 9 million sets. Panasonic shares slumped by nearly a fifth on Thursday, wiping $3 billion off its market value.
"Consumer needs have been changing and for too long Japanese electronics firms, like Sharp, with their size and heavy reliance on past successes, have been too slow to adapt," said Yuuki Sakurai, CEO of Fukoku Capital Management.
Sharp has been in talks for months with Hon Hai Precision Industry Co Ltd about the Taiwan-based group becoming Sharp's biggest shareholder. Sharp said on Thursday those capital alliance talks were ongoing and it expected some deal before a March deadline.
"Perhaps it will not fail within this year, but I don't think Sharp has a viable business in the next 3-5 years," said Tetsuro Ii, CEO of Commons Asset Management in Tokyo.
"The company hasn't got much time left and they need to cut off businesses that they can, conserve cash and ... produce something that's really competitive."
WHAT WILL DRIVE SONY?
Sony maintained its full-year forecast as costs have fallen, even though it expects to shift fewer gadgets than it thought only a couple of months ago. The company also kept its forecast to sell 34 million smartphones.
"The fact that Sony managed to maintain profits shows management's strong will and commitment to continue cost cuts even while their product sales remain sluggish," said Takashi Hiroki, chief strategist at Monex Inc. "Compared to Panasonic and Sharp ... Sony's earnings should get some credit."
"But we still don't see what their major earnings driver will be in the future."
Sharp, the maker of Aquos TVs, said it now expected to report a full-year operating loss of 155 billion yen ($1.94 billion), more than the 100 billion yen loss it had earlier predicted. But it forecast an operating profit in the current October-March second half - a target that will allow its banks to justify a $4.6 billion bailout of the struggling TV maker.
Sharp has secured fresh loans from banks in return for a pledge to axe 10,000 jobs, sell assets including overseas TV assembly plants, and return to profit. It has also mortgaged most of its offices and factories in Japan, including one that makes displays for Apple Inc's iPhone and iPad.
The bank loans may prove to be just a sticking plaster rather than a salvation, said Myojo Asset's Kikuchi. "I don't think Sharp has a future. Even if it gets by this term, financial problems could emerge again next business year, and I don't see the banks coming to the rescue."
Sharp posted a July-September operating loss of 74.8 billion yen ($936 million), compared with a profit of 30.1 billion yen a year ago, as it booked a $1.1 billion charge for a restructuring it has promised in return for financing. It also wrote down 61 billion yen of deferred tax assets in the second quarter.
Sony managed a small operating profit - of 30.3 billion yen ($379 million) - in the second quarter, after a loss a year ago, helped by the sale of a chemicals business that offset weak demand for its TVs and other devices.
Shares in Sony, valued at less than $12 billion, have dropped by close to a fifth since end-June and the cost of insuring against debt default for five years has jumped by almost 60 percent.
Sharp shares have plunged more than 75 percent so far this year, while the benchmark Nikkei average has gained more than 5 percent. Sharp fell 1.7 percent on Thursday ahead of its earnings release. Sony closed down 4 percent.
Sony CEO Kazuo Hirai has pledged to rebuild the company around gaming, digital imaging and mobile devices, and nurture new businesses such as medical devices, as the TV business shrinks. In late-September, Sony agreed to pay 50 billion yen to become the biggest shareholder in Olympus Corp, a world leader in medical endoscopes.
The company is cutting 10,000 jobs, around 6 percent of its global workforce, and is selling assets and closing facilities. Media reports have said it may also sell the New York Sony Tower, its U.S. business headquarters.
"The areas in which Sony is continuing to focus are of course high-risk, high-return markets," said JP Morgan analyst Yoshiharu Izumi ahead of the quarterly earnings. "Although we expect (full-year) margin improvement in electronics, we think it's too early to appraise a sustained recovery."
While battling weak demand and fierce competition, Sony, Sharp and Panasonic are also up against a strong yen and bumps in China, where economic growth has slowed and Japanese goods have been targetted in sometimes violent protests in a dispute over ownership of islands in the East China Sea. Sharp had almost a fifth of its revenues in China, while Panasonic has around 14 percent of its sales and Sony around 8 percent in that market.
After four straight years of net losses, Sony's Hirai is hampered by weakened finances. At end-June, Sony's shareholder equity ratio fell to below 15 percent - a rate of 20 percent is generally considered a healthy minimum.
While selling off non-core assets, Sony has also spent to bolster its business portfolio, laying out $1.8 billion in four months on the Olympus stake, a cloud gaming firm and a website for doctors. But this has prompted both Moody's and Standard & Poor's to lower their long-term debt rating on the company to the second-lowest investment grade.