Business / Corporate

Sharp's quarterly smartphone stumble seen paring annual outlook

by Grace Huang and Pavel Alpeyev

Bloomberg

Sharp Corp.’s expected first-quarter loss may deepen skepticism that demand for smartphone displays will fuel a recovery strong enough to meet its full-year profit target.

The company on Friday will probably post an operating loss of ¥19.4 billion for the three months ended June 30, according to the average of five analysts’ estimates compiled by Bloomberg.

The shortfall will make it difficult for Sharp, which supplies LCD panels to Apple Inc. among other clients, to reach its ¥80 billion profit goal for the year to next March, according to Barclays, Citigroup and Nomura.

A forecast cut would add to pressure for broader restructuring at Sharp, which has consistently missed earnings targets after failing to anticipate the success of rival TV producers in South Korea and China and slower demand growth for larger flat-screen TVs.

The company has cut its operating income target six times in the past five business years and reported a ¥48 billion operating loss in the 12 months ended March against guidance for ¥50 billion profit.

“If they cut the annual forecast, the company will have to come up with new measures to meet its mid-term goal of improving finances,” said Yu Okazaki, an analyst at Nomura. “Their business portfolio will need further restructuring, and not just LCDs, but appliances, copiers and TV businesses could be up for sale.”

Sharp, which had net losses totaling $13.3 billion in the last four financial years, announced a recovery plan in May, including cutting its workforce by 10 percent and selling preferred shares to banks.

President Kozo Takahashi is also selling the company’s headquarters, quitting markets and cutting back its solar business, while demand growth slumps in its new mainstay smartphone displays.

Sharp has already cut factory output of smartphone screens to deal with excess inventories left over from the previous quarter, according to Kazunori Ito, an analyst at Barclays in Tokyo. The company is facing falling demand in China and increased competition from rival manufacturers such as Samsung Electronics Co., he said.

“Demand in this market is weakening, but competition is getting more and more brutal,” Ito said.

Ito estimates that a ¥25 billion loss in the three-month period will lead to an annual profit cut to ¥50 billion. He recommends selling the shares. Nomura’s Okazaki says the quarterly loss may exceed ¥30 billion and has a neutral rating on the company.

Under the revamp plan, the firm is shifting resources to Asia and Japan by quitting its TV businesses in Europe, Canada and Australia. Sharp said it expects to turn the remainder of the LCD TV business profitable in the second half of fiscal 2015.

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