Sharp's Profits on LCD Panels: Worse Than Flat

Kameyama, a town of 50,000 people in central Japan, boomed when Sharp started making liquid-crystal-display panels there in 2004. Sharp, which dominated the industry with a 22 percent market share in LCD TVs, poured $6.6 billion into Kameyama, building two state-of-the-art factories and creating 3,000 jobs. Then Samsung Electronics began driving down prices—for 40-inch LCD panels, they fell from about $2,700 at the beginning of 2004 to $250 early this year. Samsung’s market share soared, to 29 percent in 2012 from 10 percent in 2004, and Sharp saw its share plunge to 5 percent. It slashed jobs at Kameyama and in October pledged the factories as collateral along with most of its other properties, including its headquarters in Osaka, to get 360 billion yen ($4.6 billion) in loans to stay afloat.

On Nov. 1, Sharp forecast a record 450 billion-yen loss for the fiscal year ending March 31, double its previous estimate, saying there’s “material doubt” about its ability to survive. (Sharp removed those words from its English-language release on Nov. 5 but kept them in its Japanese announcement.) Its debt was quickly downgraded to junk by Fitch Ratings, and its shares fell, extending this year’s decline to about 75 percent, making it the worst performer among more than 1,600 companies in the MSCI World Index of developed nations. Sharp failed to complete a deal for a 67 billion-yen investment from Taiwan’s Foxconn Technology Group and has had difficulty selling commercial paper as it burns through cash. “Fitch does not foresee any meaningful operational turnaround in the company’s core business over the short to medium term,” the ratings company said after its Nov. 2 downgrade.