Kojiro Sekine and Ryosuke Yamauchi
By Kojiro Sekine and Ryosuke Yamauchi
Sharp Corp’s future remains uncertain despite plans to rehabilitate the company by reinforcing its mainstay liquid crystal display panel business and reshuffling its executive lineup. On Tuesday, Sharp announced massive deficits in the business year ending in March, and the company plans to undergo corporate rehabilitation under the guidance of its main creditor banks.
Major electronics companies, which rely on TV businesses for their growth, including Panasonic Corp and Sony Corp, now face a major turning point. “It’s common sense anywhere in the world that a company head presides at the negotiating table, “ Sharp Vice President Kozo Takahashi said at a press conference.
Takahashi, who will take over as company president in June, admitted the firm had suffered from problems of “polyarchy”, or a multiheaded regime, over the past year.
In August, Sharp Chairman Mikio Katayama and Katsuhiko Machida, an adviser who resigned from the board in June last year, held negotiations with Taiwan’s Hon Hai Precision Industry Co, a major electronics manufacturing service company, on forming a capital and business alliance, which was announced months earlier.
Sharp President Takashi Okuda was excluded from the negotiations, even though they were key to restructuring the company. Instead, Okuda visited banks to raise funds to keep the firm going.
Katayama, an expert on LCD business, successfully achieved alliances with US chipmaker Qualcomm Inc. and South Korea’s Samsung Electronics Co. Okuda dealt with internal matters, such as handling voluntary retirements of employees, rather than negotiations with other companies.
This resulted in a delay in selling TV plants and cancellation of the capital alliance with Hon Hai, which slowed down reconstruction efforts. Infuriated executives wondered whether Okuda really had what it takes to be the company’s top executive.
Sharp’s main banks and the Economy, Trade and Industry Ministry, which launched a behind-the-scenes effort to assist in the rehabilitation, became distrustful of the company. “We don’t know who the real head of the company is,” one official said.
This has culminated with Okuda’s impending departure a little more than a year after he took over as president. Sharp’s massive losses were caused by its LCD business. However, as that same business was once the main engine of its growth, Sharp needs to reshape it as the basic premise of its rehabilitation.
survival strategy
Vice President Takahashi said: “We’ll expand our deals with stable clients and increase our sales.” Sharp’s immediate survival strategy is to beef up its supply of LCD panels to other companies.
The demand for LCD panels violently fluctuates. If Sharp can secure companies to supply with its LCD panels, the operating rate of its factories will rise and its profits will stabilize.
Sharp has already successfully raised the operating rate of its Sakai factory in Osaka Prefecture to more than 80 percent from 30 percent through a company it jointly owned with Hon Hai that operates the large-scale LCD panel factory. However, one analyst said, “Promoting sales to other firms is a double-edged sword for Sharp.”
Hon Hai, which produces Apple Inc’s iPhone, competes against Samsung in the smartphone business. The tie-up with Samsung could affect the expansion of collaborations with Hon Hai in the Asian market, such as the development of mobile phones in China.
As tie-ups with other companies, which Sharp has promoted to enhance its credit, could have a negative effect, it is unclear whether Sharp’s “omnidirectional diplomacy” will ultimately be successful.
Since the former management team responsible for expanding Sharp’s LCD business is set to leave the spotlight, the firm’s large creditor banks will be the de facto leaders of Sharp’s rehabilitation efforts. Sharp will have to depend on the banks to raise funds for day-to-day business operations and restructuring efforts.
Sharp has had difficulty procuring funds through corporate bonds since February last year due to poor business performances. It has no choice but to rely on its major creditor banks for daily fund raising and to finance the redemption of corporate bonds worth about 200bn yen this autumn ($1.9bn) and 130bn yen next year.
The rate of borrowing from financial institutions against the total of interest-bearing debts has reached about 70 percent. Two executives from two main creditor banks will be mainly in charge of structural reform and running the company’s administration. In a sense, Sharp is now a company under bank control.
WP-BLOOMBERG
By Kojiro Sekine and Ryosuke Yamauchi
Sharp Corp’s future remains uncertain despite plans to rehabilitate the company by reinforcing its mainstay liquid crystal display panel business and reshuffling its executive lineup. On Tuesday, Sharp announced massive deficits in the business year ending in March, and the company plans to undergo corporate rehabilitation under the guidance of its main creditor banks.
Major electronics companies, which rely on TV businesses for their growth, including Panasonic Corp and Sony Corp, now face a major turning point. “It’s common sense anywhere in the world that a company head presides at the negotiating table, “ Sharp Vice President Kozo Takahashi said at a press conference.
Takahashi, who will take over as company president in June, admitted the firm had suffered from problems of “polyarchy”, or a multiheaded regime, over the past year.
In August, Sharp Chairman Mikio Katayama and Katsuhiko Machida, an adviser who resigned from the board in June last year, held negotiations with Taiwan’s Hon Hai Precision Industry Co, a major electronics manufacturing service company, on forming a capital and business alliance, which was announced months earlier.
Sharp President Takashi Okuda was excluded from the negotiations, even though they were key to restructuring the company. Instead, Okuda visited banks to raise funds to keep the firm going.
Katayama, an expert on LCD business, successfully achieved alliances with US chipmaker Qualcomm Inc. and South Korea’s Samsung Electronics Co. Okuda dealt with internal matters, such as handling voluntary retirements of employees, rather than negotiations with other companies.
This resulted in a delay in selling TV plants and cancellation of the capital alliance with Hon Hai, which slowed down reconstruction efforts. Infuriated executives wondered whether Okuda really had what it takes to be the company’s top executive.
Sharp’s main banks and the Economy, Trade and Industry Ministry, which launched a behind-the-scenes effort to assist in the rehabilitation, became distrustful of the company. “We don’t know who the real head of the company is,” one official said.
This has culminated with Okuda’s impending departure a little more than a year after he took over as president. Sharp’s massive losses were caused by its LCD business. However, as that same business was once the main engine of its growth, Sharp needs to reshape it as the basic premise of its rehabilitation.
survival strategy
Vice President Takahashi said: “We’ll expand our deals with stable clients and increase our sales.” Sharp’s immediate survival strategy is to beef up its supply of LCD panels to other companies.
The demand for LCD panels violently fluctuates. If Sharp can secure companies to supply with its LCD panels, the operating rate of its factories will rise and its profits will stabilize.
Sharp has already successfully raised the operating rate of its Sakai factory in Osaka Prefecture to more than 80 percent from 30 percent through a company it jointly owned with Hon Hai that operates the large-scale LCD panel factory. However, one analyst said, “Promoting sales to other firms is a double-edged sword for Sharp.”
Hon Hai, which produces Apple Inc’s iPhone, competes against Samsung in the smartphone business. The tie-up with Samsung could affect the expansion of collaborations with Hon Hai in the Asian market, such as the development of mobile phones in China.
As tie-ups with other companies, which Sharp has promoted to enhance its credit, could have a negative effect, it is unclear whether Sharp’s “omnidirectional diplomacy” will ultimately be successful.
Since the former management team responsible for expanding Sharp’s LCD business is set to leave the spotlight, the firm’s large creditor banks will be the de facto leaders of Sharp’s rehabilitation efforts. Sharp will have to depend on the banks to raise funds for day-to-day business operations and restructuring efforts.
Sharp has had difficulty procuring funds through corporate bonds since February last year due to poor business performances. It has no choice but to rely on its major creditor banks for daily fund raising and to finance the redemption of corporate bonds worth about 200bn yen this autumn ($1.9bn) and 130bn yen next year.
The rate of borrowing from financial institutions against the total of interest-bearing debts has reached about 70 percent. Two executives from two main creditor banks will be mainly in charge of structural reform and running the company’s administration. In a sense, Sharp is now a company under bank control.
WP-BLOOMBERG
