Sharp Gains on $121 Million Qualcomm Capital Tie-Up: Tokyo Mover

Sharp Rises Most in 38 Years as Debt Repayment Concerns Ease
Attendees walk past the Sharp Corp. booth at the CEATEC Japan 2012 exhibition in Chiba, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Sharp Corp., the Japanese TV maker that warned last month about its ability to survive, reached a two-month high after saying it plans to raise as much as 9.9 billion yen ($121 million) selling shares to Qualcomm Inc.

Sharp, the world’s second worst-performing major stock, rose 4 percent to 181 yen in Tokyo trading, its highest close since Oct. 4. The Osaka-based company will sell 30.12 million shares at 164 yen apiece to Qualcomm this month for a 2.6 percent stake, and may sell another 4.94 billion yen of stock if certain conditions are met, the TV maker said in a statement after the market closed yesterday.

Japan’s largest liquid-crystal-display maker turned to Qualcomm, the biggest maker of mobile-phone chips, after failing to get a planned 67 billion-yen investment from Taiwan’s Foxconn Technology Group. Sharp needs to restore its balance sheet after hemorrhaging 103 billion yen in cash from operations in the fiscal first half amid falling demand and competition from Samsung Electronics Co.

“Sharp has some really interesting technology, and we’re happy to be working with them on that,” Steven Mollenkopf, president and chief operating officer of San Diego-based Qualcomm, said in an interview today. “Obviously, they’ve had some difficult times. We think they’ll be successful.”

Sharp Targets

The second share sale is based on certain conditions, including securing the resources needed for research and development, according to the statement. Other targets include Sharp posting an operating profit in the six months to March 2013, and holding 125 billion yen in cash and 100 billion yen in net assets as of March 31, according to the statement.

“The investment from Qualcomm removed investors’ anxiety,” said Hideki Yasuda, an analyst at Ace Securities Co. in Tokyo. “The amount is not big but the fact Qualcomm will invest in Sharp is important because it means Qualcomm considers Sharp won’t go bankrupt.”

He rates Sharp the equivalent of hold.

The companies plan to develop displays using Sharp’s IGZO technology and Qualcomm’s Micro Electro Mechanical System, or MEMS, display technology. The screens would be “on all the time,” Mollenkopf said.

“This technology probably fits a need that doesn’t exist today,” he said.

Foxconn Deal

Sharp initially agreed in March to sell a 9.9 percent stake to Taiwan billionaire Terry Gou’s Foxconn, the assembler of Apple Inc. iPhones and iPads, at 550 yen a share. Sharp’s forecast for bigger losses caused the shares to plunge, prompting the two companies to renegotiate terms.

The second share sale with Qualcomm, scheduled in March 2013, would total $60 million and the yen denomination figure may change subject to the currency rate, according to the statement. The two companies may postpone that sale until June 30, according to the statement.

Sharp said last month there was “material doubt” about its ability to survive after forecasting a record 450 billion-yen full-year loss because of sluggish demand for its panels. The company is selling assets and cutting jobs to revive profit after posting a record 376 billion-yen loss in the fiscal year ended March 31.

The company will book a 25.3 billion-yen, one-time charge in the quarter ending Dec. 31 to eliminate 2,960 jobs, it said Nov. 20.

“We made a small investment to help them and also to de-risk a little bit of the work together,” Mollenkopf said.

Qualcomm has announced 21 acquisitions, totaling $289 million, in the past 12 months, according to data compiled by Bloomberg.

Qualcomm rose 0.2 percent to $63.47 in New York trading yesterday and has gained 16 percent this year. It had $3.8 billion in cash and near-cash as of Sept. 30, down 30 percent from a year earlier, according to data compiled by Bloomberg.

Qualcomm sells baseband chips that connect phones to cellular networks. It also is expanding into the market for application processors, which run programs in phones and tablet computers, and will be supplying its Snapdragon processors to computer makers using the new version of Microsoft Corp.’s Windows software.

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