Sharp Corp. (6753) may lose more money than it forecast this year, analysts predict, increasing pressure on the struggling Japanese electronics maker to raise funds and complete a stake sale to Foxconn Technology Group.
The company likely will report a net loss of 295 billion yen ($3.8 billion) for the year ending March 31, according to the average estimates of seven analysts compiled by Bloomberg. Sharp last month forecast a 250 billion-yen net loss, eight times greater than originally predicted, because of its unprofitable TV and display units.
Shipments of smartphone panels were delayed after a defect was found during testing, the Osaka, Japan-based company said in August. The company also is experiencing lower-than-expected operation rates at a plant making displays for tablet computers, prompting analysts at Goldman Sachs Group Inc. and Deutsche Bank AG to lower their earnings estimates as Sharp prepares a revival plan for lenders.
“It’s possible that the company will cut forecasts,” Yasuo Nakane, a Deutsche analyst in Tokyo, said by phone. “If Sharp was to cut forecasts during the next quarter, rather than this quarter, that may cause troubles with its banks.”
Sharp’s net loss will probably total 324 billion yen this fiscal year, said Nakane, who previously estimated a 77.3 billion-yen loss.
Takashi Watanabe, a Goldman Sachs analyst, widened his estimates for Sharp’s operating loss to 161 billion yen this fiscal year, he said in a Sept. 11 report, citing lower-than- estimated panel output. The company last month projected a 100 billion-yen operating loss.
‘Harsh Business Circumstances’
Sharp said Sept. 11 it may revise earnings estimates because of “harsh business circumstances.”
“Changes in the forecasts for fiscal 2012 consolidated financial results will be announced separately once revisions are decided necessary,” the company said in a statement announcing payroll reductions.
Miyuki Nakayama, a spokeswoman for Sharp, declined to elaborate.
Sharp found a defect in its smartphone displays during a “dropping test,” Tetsuo Onishi, the senior executive managing officer in charge of accounting, said last month, declining to name the client. The defect is minor and probably won’t delay the client’s product release, he said.
Tablet Displays
“The unexpected delay in shipping suggests it would be a negative factor for Sharp’s earnings,” said Keita Wakabayashi, a Tokyo-based analyst at Mito Securities Co.
Sharp has started shipping screens for Apple Inc.’s iPhone 5, Marketwatch said today, citing an unidentified person. Hiroshi Takenami, a Sharp spokesman, declined to comment on the report. Apple unveiled the latest iPhone, which will go on sale Sept. 21, yesterday in the U.S.
Sharp’s plants making medium-sized displays also continue to be underutilized, Watanabe said. The factories may run at about 50 percent next fiscal year and 60 percent the year after, he said, lowering his estimates from 60 percent and 75 percent, respectively.
Sharp’s shares plunged to a 37-year-low after the company widened its loss forecast, prompting Foxconn to renegotiate a deal reached in March in which the Taiwanese group agreed to pay 67 billion yen for a 9.9 percent stake in Sharp. The companies haven’t announced a new agreement.
Sharp rose 1.4 percent to 212 yen as of the 11:30 a.m. break in Tokyo trading. The shares have declined 69 percent in Tokyo trading this year, making them the biggest percentage loser among more than 1,600 companies in the MSCI World Index. (MXWO)
Mechanical Pencils
The most pessimistic of the seven estimates for Sharp since Aug. 23 is for an annual loss of 350 billion yen, according to data compiled by Bloomberg. The most optimistic is for a 260 billion-yen loss in the year ending in March.
The electronics maker widened its full-year loss forecast from 30 billion yen. Sharp posted a 376 billion-yen net loss in the year ended March 31 as earnings were eroded by a strong yen and competition from TVs and phones made by Samsung Electronics Co. and LG Electronics Inc. (066570)
The 100-year-old inventor of mechanical pencils is seeking to raise cash and cut costs as it faces a total of 706 billion yen in bonds, commercial paper and borrowings maturing within one year. The company is cutting 5,000 jobs, its first workforce reduction since 1950, as part of plans to reduce fixed costs by 100 billion yen.
‘Recovery Won’t Happen’
Sharp is in talks with unions to cut wages and will reduce managers’ salaries and bonuses to trim another 14 billion yen in costs, it said Sept. 11. The company said last month it plans to return to operating profit in the fiscal second half, beginning Oct. 1.
“Sharp’s expected second-half recovery won’t happen,” Jeff Loff, a senior analyst at Macquarie Capital Securities in Tokyo, wrote in a report last week.
Losses from Sharp’s LCD business may total 137 billion yen this fiscal year, compared with the company’s August projection of 105 billion yen, Loff said, citing lower yields of displays using the technology known as IGZO. Those panels are thinner, have a higher resolution and use less energy than conventional models.
Sharp said last month it will improve the operation rate of its medium-size IGZO displays for tablet PCs by increasing the number of orders from large clients.
“There are risks that demand for its IGZO panels aren’t as much as the company had expected,” Deutsche’s Nakane said. “Sharp hasn’t found any other clients.”
Contingency Plan
Sharp is working on a contingency plan to present to banks as the company seeks help to refinance debt, Onishi said last week. The company has submitted a plan for returning to an operating profit in the second half and hired a specialist to evaluate assets and business plans, Onishi said.
The electronics maker is in talks with lenders including life insurance companies to raise funds through a new syndicated loan, a person with knowledge of the matter said this month.
Mizuho Financial Group Inc. (8411) and Mitsubishi UFJ Financial Group Inc. (8306), Sharp’s two main banks, provided the company with a short-term facility of 60 billion yen in July and an approximately 150 billion-yen credit last month to help the company refinance commercial papers, according to another person with knowledge of the matter.
‘Zero’ Value
Sharp’s liabilities reached 2 trillion yen at the end of June -- the most since at least 2003, according to data compiled by Bloomberg. The company put up its headquarters and some plants as collateral to win bank loans after its credit ratings were cut to junk by Moody’s Investors Service and Standard & Poor’s.
Sharp may have additional collateral capacity of as much as 480 billion yen, taking into account buildings and structures, machinery and equipment and marketable securities, Deutsche Bank AG analyst Akihito Murata said in a report yesterday. That may not be sufficient to cover Sharp’s more than 820 billion yen in bank loans and outstanding commercial paper as of the end of the first quarter, he said.
“We still do not believe that Sharp has sufficient fund procurement capacity,” Murata said in the report.
Loff at Macquarie downgraded the rating on the stock to underperform, or sell, from neutral, and cut the 12-month share- price estimate to 90 yen from 680 yen.
“If Sharp cannot turn around its display business, then we believe operating losses and weaker prospects for reducing debt could render the value of the equity zero,” he said.
To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net
To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net