Business / Corporate | FOCUS

Giants Sharp, Toshiba face dire prospects

by Tomoyuki Tachikawa

Kyodo

Several electronics makers have regained profitability largely thanks to restructuring measures and the weakening of the yen, but Sharp Corp. and Toshiba Corp. are unlikely to catch up with their domestic rivals soon.

Struggling Sharp’s latest rehabilitation plan got a cold reception from the financial markets, while Toshiba faces the risk of being delisted in light of accounting irregularities that have emerged in connection with past infrastructure projects.

The stock prices of the two well-established enterprises have come under selling pressure recently, with fears growing that they will lose global competitiveness and face a tougher predicament down the road.

“Sharp has yet to stand at the starting line to grow again, although some Japanese electronics makers have shown signs of a full-fledged recovery,” said Kentaro Harada, a credit analyst at SMBC Nikko Securities Inc. in Tokyo.

An industry source also said that if Toshiba is found to have cooked its books, the latest problem could “undermine credibility” in the company and “deal a crushing blow” to its corporate performance.

Among Japan’s top electronics makers, Hitachi Ltd. and Mitsubishi Electric Corp. have posted record group operating profits, while Panasonic Corp. enjoyed a strong earnings improvement in fiscal 2014 ended March 31, thanks to the yen’s plunge under “Abenomics.”

Sony Corp. logged a group net loss for the same year but it expects to return to the black for the first time in three years in the business year ending in March 2016, sparking hopes for the icon’s revival.

But Osaka-based Sharp said it returned to the red in fiscal 2014 with a group net loss of ¥222.35 billion ($1.8 billion), erasing the ¥11.56 billion profit logged the previous year.

Vowing to repair its precarious financial situation triggered by poor showings from its core liquid crystal display and solar panel businesses, Sharp on May 14 unveiled a new business plan that entails selling its head office in Osaka and cutting around 3,500 jobs in Japan.

It will also receive a ¥200 billion bailout from its two main creditor banks — Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ — and ¥25 billion from a corporate reconstruction fund the two banks have invested in.

By sticking to the plan for three years, Sharp aims to move into the black in fiscal 2016 and expand net profit in fiscal 2017 ending in March 2018, President Kozo Takahashi has said.

But the strategy is not aggressive enough to turn around Sharp’s stagnant business, as it is still uncertain in which fields it can profit, many experts say.

“Orders for small and medium-sized LCDs tend to fluctuate with rapid technological change. It is a blow to Sharp that demand for tablet devices, for which the company expected to make use of its own technology, has slowed,” Rating and Investment Information Inc. said in a report.

“There are operations such as office equipment that can generate stable earnings, but it remains to be seen whether the company will be able to raise the earnings and cash flow generating capacities in the medium term,” the Japanese rating agency added.

Sharp used to be the front-runner of LCD television production in the early 2000s. The TVs it produced are known as the “Kameyama models” as they symbolized the advanced production technologies that were in use at its factory in the city of Kameyama.

It has become increasingly difficult for LCD TV makers to differentiate their products via the panels, and Sharp has been caught in a global price-cutting war in recent years, weakening its financial footing.

“The only way for Sharp to survive is to eventually develop technologies for creating products that will attract and satisfy consumers,” a trader at a Japanese securities house said.

Tokyo-based Toshiba meanwhile says it may have to downgrade operating profit by at least ¥50 billion for the three years through March 2014 over improper accounting in its infrastructure business.

Toshiba has said in a statement that the major causes of the irregularities were its corporate culture, which placed high priority on budgetary achievement, and the “imperfect function of internal controls for accounting reports.”

An equity analyst at a foreign brokerage said many analysts “had already realized” that some of Toshiba’s businesses were “obviously” being tasked with high profit goals.

Toshiba has to report its annual earnings by the end of June to abide by Tokyo Stock Exchange rules. Failure to do so could place it on a “watch list” for delisting.

The possibility cannot be ruled out that Toshiba will really be delisted if serious accounting frauds are spotted.