Japan’s electronics giants aimed for a fresh start last year, shaking up their management following record losses, but announcements of dismal earnings from stalwarts Sony Corp. 6758.TO -6.95 percent and Sharp Corp. 6753.TO -28.09 percent on Thursday showed the firms still have a long way to go.
The technological sea change that lifted overseas competitors Apple Inc. AAPL +0.16 percent and Samsung Electronics Co. 005930.SE -2.85 percent to record profits remains a drag for their Japanese counterparts which, instead of reaping profits from the smartphone boom, are sifting through losses from flat-panel televisions.
In early Tokyo trading Friday, Sharp shares fell 28 percent to JPY 191 ($2.43) approaching a lifetime low of JPY 188 reached in 1975. Shares of Sony also fell, down 7 percent to JPY 897, the lowest level in three decades.
The Japanese firms also demonstrated they have few answers for the unrelenting rise of the yen, which has steadily appreciated for the last several years. The currency’s climb has called into question the wisdom of manufacturing goods in Japan because it makes those products more expensive when sold abroad.
Sharp said it would cut jobs en masse for the first time since 1950, with most of the planned 5,000 job cuts – or about 9 percent of its global workforce – coming from Japan. It plans to downsize two domestic factories: a site making TVs and other audiovisual products, and a facility producing solar panels.
“If we don’t do this now, there won’t be future growth for Sharp,” Takashi Okuda, who took over as Sharp’s president in June, said at a news conference.
Sharp said it now expects a net loss of JPY 250 billion, or $3.2 billion, in the financial year ending next March from an earlier projection for a JPY 30 billion loss. The revision comes as Sharp was trying to dig out from the past fiscal year’s dismal result – a worst-ever net loss of JPY 376.07 billion.
The losses have weakened Sharp’s financial standing as the company faces redemption of a JPY 200 billion convertible bond next year. Sharp said it has asked its major financial lenders to extend a greater line of credit to help with its finances.
Tokyo-based Japan Credit Rating Agency Ltd on Thursday downgraded the rating on Sharp’s debt two notches to single-A-minus. “The company no longer has a sufficient financial buffer against business risk,” JCR wrote in a report issued after Sharp’s announcement.
The slowdown in television sales over the last few years hit Sharp with a double whammy. Not only are its own sets struggling to find buyers, especially in China and Japan where the markets have slowed considerably; other electronics manufacturers who buy large-size liquid-crystal-display panels from Sharp are also scaling back orders.
Sharp’s problems stem from the construction of a massive LCD-panel factory in Sakai in western Japan in late 2009. When the market slowed down, Sharp was overrun with inventory and decided not to run the factory at full capacity. In a ground-breaking deal in March, Sharp sold 37.6 percent of theSakaifactory to Taiwanese manufacturing giant Hon Hai Precision Industry Co., 2317.TW -3.77 percent which also agreed to take a 10 percent stake in Sharp.
Sony joined Sharp in revising its earnings lower, albeit to a much lesser degree. Hurt by the yen’s strength and slumping sales of consumer-electronics products, Sony said it expects a net profit of JPY 20 billion, or $255 million, for the year to March, compared with an earlier forecast of a JPY 30 billion profit.
Sony, which has said it plans to cut 10,000 jobs this fiscal year, slashed its sales targets for most of its consumer-electronics portfolio. It scaled back sales projections for LCD televisions, digital cameras, Blu-ray disc players, computers and hand-held game machines. Sony did raise its targets for smartphones, but even that silver lining came with some clouds as the company said the handsets were starting to steal sales away from low-end digital cameras and portable game machines.
The company dissolved its joint venture with Sweden’s Telefon AB L.M. Ericsson ERIC -0.75 percent and took full control of its mobile-phone business earlier this year. Sony, which tapped Kazuo Hirai to replace Howard Stringer as CEO in April, said economic conditions in developed nations worsened more than it had expected, while growth in emerging markets started to slow. The strong yen, especially against the euro, remains a thorn in Sony’s side.
The company had based its full-year projections on the assumption that the yen would trade at JPY 80 to the US dollar and JPY 105 to the euro. It now sees the euro trading at JPY 100 for the rest of its fiscal year. The dollar was trading at JPY 78.23 and the euro at about JPY 95 Thursday in midday New York trading. Sony has said it has fully offset its exposure to the dollar, but a one-yen appreciation against the euro cuts into its annual operating profit by JPY 6 billion.
“From our fiscal second quarter on, we decided to be cautious because of the currency and the general weakness of the economy,” Shiro Kambe, Sony’s senior vice president in charge of communications, said at a news conference.
Earlier this week, Panasonic Corp. 6752.TO -3.75 percent expressed similar caution after its fiscal first-quarter results. However, it avoided the pitfalls of Sony and Sharp by returning to profit in the quarter, helped by improvements in reducing its fixed costs. -By Daisuke Wakabayashi