Sharp in Talks to Deepen Salary Cuts Amid Forecast for Loss

Sharp Corp. (6753), the Japanese electronics maker renegotiating a stake sale to Foxconn Technology Group, is in talks with its labor union to deepen salary cuts as it projects a second straight annual loss.

Sharp is also reducing managers’ salaries by 10 percent starting next month and cutting bonuses in half to save a total of 14 billion yen ($179 million) in fixed costs, the Osaka-based company said in a statement today. It also may revise forecasts.

Japan’s biggest maker of liquid-crystal panels put up its Osaka headquarters and some factories as debt collateral after its credit ratings were cut to junk. Sharp has lost more than two-thirds of its market value this year as it struggles to stop losing money from LCDs. The decline in share value has prompted Taipei-based Foxconn to renegotiate terms for a capital tie-up agreed to in March.

“Business circumstances surrounding the Sharp group are growing even harsher, and improvement of financial strengths for recovery need to be secured,” the company said in the statement. “Changes in the forecasts for fiscal 2012 consolidated financial results will be announced separately once revisions are decided necessary.”

Before the announcement, Sharp rose 3 percent to 208 yen at the close of trading in Tokyo. The stock has plunged 69 percent this year, making it the biggest percentage loser among more than 1,600 companies in the MSCI World Index. (MXWO)

Job Cuts

New President Takashi Okuda is eliminating 5,000 jobs by the end of March 2013, marking Sharp’s first job cuts since the 1950s. The company wants to reduce labor costs by 40 billion yen as part of its plans to lower fixed costs by 100 billion yen this fiscal year, it said Aug. 2.

Today’s announcement is in addition to that plan, said Miyuki Nakayama, a Tokyo-based spokeswoman. Sharp plans to deepen the 2 percent salary cut for union members started in May to 7 percent starting next month, according to today’s statement.

Sharp had 56,756 employees as of March 31, a 2.1 percent increase from a year earlier, according to data compiled by Bloomberg.

The company already cut managers’ salaries by 5 percent in April and their bonuses by 30 percent in June, according to the statement. Similar reductions will be applied to union members after discussions are completed, Sharp said.

Last month, Sharp projected a net loss of 250 billion yen for the year ending in March 2013, compared with 30 billion yen estimated three months earlier.

Contingency Plan

“Sharp should first draw a ground design for a revival and then take necessary measures to achieve it,” said Ichiro Takamatsu, a fund manager at Tokyo-based Bayview Asset Management Co. that oversees 150 billion yen. “Putting out restructuring plans little by little won’t have a good effect on employees.”

Sharp is working on a contingency plan to present to banks as the company seeks help to refinance debt, Tetsuo Onishi, senior executive managing officer in charge of accounting, said last week. Sharp has hired a specialist to evaluate assets and business plans, Onishi said.

Getting no investment from Foxconn “is a risk factor that needs to be included” in the plan, Onishi said at the time.

Sharp may raise funds through a new syndicated loan from financial institutions including life insurance companies, a person with knowledge of the matter said this month.

Mizuho Financial Group Inc. (8411) and Mitsubishi UFJ Financial Group Inc., 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.

To contact the reporter on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net.

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net.