Sharp under fire over restructuring plan

Sharp undertakes another restructuring Three years ago when Sony, Toshiba and Hitachi merged their struggling display businesses, one Japanese consumer electronics company was conspicuously absent: Sharp.

At the time, the supplier of smartphone screens to Apple was confident it could survive on its own as it had done over the past century with its cutting-edge display technology, people familiar with the talks say.

Investors are now less certain as Sharp unveiled a $1.9bn bailout package from banks and a domestic investment fund after reporting its third heavy loss in four years. That brought its cumulative losses in the past four years to $9.6bn. Its equity ratio - a measure of capital strength - stood at a razor-thin 1.5 per cent.

Corporate governance experts say Sharp's woes are symbolic of the troubles that caused the decline of Japan's consumer electronics industry: foot-dragging in making hard decisions to exit from unprofitable businesses.

"The quintessential problem in Japan is that companies and creditors have lost the ability to do large-scale restructurings," says Nicholas Benes, a Tokyo-based corporate governance and M&A expert.

"They are only willing to bite the bullet and sell themselves when they are about to go bankrupt," he adds.

Kozo Takahashi, Sharp's president, said there are "no sacred cows" for its latest turnround plan, which involves a 10 per cent cut in its workforce and the sale of its head office in Osaka. "This is a big challenge for Sharp as a whole that we will carry out with unwavering resolve," he said.

In a round of restructurings over the years, Sharp has laid off thousands of jobs, sold overseas plants and pulled out of solar cell production in Europe.

Mr Takahashi said each of its businesses would be run more independently to speed up decision-making and promised stronger governance by adding outside directors. Two executives from the Japanese turnround fund, which is owned by the banks, would join the board.

But the latest measures do not include the anticipated spin-off of its smartphone display business, which has struggled with price declines and the rise of Asian rivals. Mr Takahashi also said he was not considering scaling back its television business in Japan and Asia.

"There was little that was new about the restructuring measures. It's worrying that we are not seeing a specific business model that is likely to be money making," says Akio Makabe, an economics professor at Shinshu University who has written about Japan's consumer electronics industry.

In the wake of the global financial crisis in 2008, Sharp was not alone in its struggles. Rivals including Sony and Panasonic also grappled with an export-wrecking surge in the yen and cut-throat competition from South Korea's Samsung Electronics and other Asian rivals.

But companies such as Hitachi and Panasonic rebounded strongly after they pulled out of commoditised products such as mobile phones and flat-panel TVs to focus on more profitable sectors including car batteries and railway systems.

Even Sony, famous for its Vaio and Trinitron brands, has sold its personal computer business and spun off its TV business into a separate subsidiary.

Some analysts have called for more radical decisions such as merging Sharp with Japan Display, the entity created from when the display units of Sony, Hitachi and Toshiba in 2012 were put together to ease price competition and strengthen cost controls.

But Sharp executives have strongly opposed integrating with Japan Display.

Besides, some turnround experts also say that the timing for such a combination has long passed with Japan Display struggling to make money. For the fiscal year ended in March, the company reported a net loss of Y12.27bn ($103m) and shares continue to trade 47 per cent below its offering price.

Instead, a far-bigger shake-up in the industry may be called for with Japan's consumer electronics industry still having eight major players despite the weakening of competitiveness over the past decade.

"Japanese companies tend to lag behind in consolidation efforts, and there needs to be an acceleration on that front," says Mr Makabe.

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation