How Sharp Stays On The Cutting Edge

The leader in flat-panel TVs also banks on cell phones, solar power, and white goods

Sharp Corp.'s Takuji Okawara has one of the coolest jobs at one of Japan's coolest companies. Okawara, 58, is a top executive at the Osaka consumer-electronics company that has become the world's leading producer of thin-screen TVs made with liquid crystal displays (LCDS). His job: As technology becomes more commoditized, make sure that Sharp (SHCAY ) always stands out from the crowd. "We need to create something new, something different," Okawara explains. "We can stay away from making commodity products with a combination of high technology and high-end design."

How cutting edge is Sharp? At CEATEC Japan, a big consumer-electronics show near Tokyo in early October, Sharp's newest products were on full display: The company showed a prototype of a monster 65-inch LCD TV -- the largest made. Then there were the design touches. Some of Sharp's big-screen LCD models were framed in superglossy Japanese lacquered red and black wood. And just to rub in how dominant Sharp is these days, on Oct. 4, the day before the show started, the company announced it expects earnings for the six months ended Sept. 30 to be $351 million, up 40% from a year ago, on sales of $11.3 billion. "We are convinced that LCD TVs will be the mainstream TV for the world market," says President Katsuhiko Machida.

VIRUS-ZAPPING ACS

Sharp, in many ways, is the company that Sony wishes it still was: tops in a key hardware sector and raking in the money. The company's global share in LCD TVs is 35%. And the TV business has made the company Japan's most profitable electronics maker over the the last five years, according to a recent Lehman Brothers Inc. (LEH ) report. And with $3.3 billion in cash on hand, Sharp can easily invest in making ever bigger LCD panels, the key component of its TVs.

Where does Sharp go from here? Deeper into LCD TVs, certainly. Lehman projects the company will sell 3 million sets this year, double last year's sales. A big priority is to bring down costs, make the TVs more mainstream, and combat competition from Taiwan and China. Those me-too rivals are already doing damage. Riddhi Patel, an analyst with California market research firm iSuppli Corp., notes that Sharp's 35% global share in LCD TVs this year is down from 50% last year.

Machida's strategy is to keep producing innovative TVs while beefing up business in related fields. One target is mobile phones, where expertise in LCDs offers an advantage. "They know how to make the best displays," says Gerhard Fasol, CEO of Eurotechnology Japan, a Tokyo consulting firm. "The screen is fantastic." While Sharp had handset sales of only $3 billion last year -- compared with $10.3 billion for Motorola Inc. (MOT ) -- its sales were up 37%.

The two other areas where Machida wants to flex his muscles are appliances and solar panels. In white goods, sales of such items as refrigerators, air conditioners, and ovens account for 9% of Sharp's revenues, but contribute almost no profit. Machida wants to fix that with a technology upgrade. That means air conditioners that can zap viruses in the air and ovens that actually leech the fat out of meat.

Machida & Co. are especially excited about the potential for their solar business, which could bring in $900 million in revenue this year. Sharp has been making solar cells since 1963, and controls 25% of the business worldwide. At CEATEC, the company demonstrated a new array of solar panel skylights for commercial use that transform sunlight into electricity during the day, and then use the electricity to power light-emitting diodes that illuminate a room at night.

Sharp's plans to hedge its bets against an LCD glut are no sure thing, of course. For instance, Machida's plans to upgrade the white-goods division are impressive, but Sharp remains No. 5 in that business in Japan. Obstacles? Yes. But then again, that long-ago bet on LCDs was no sure thing, either.

By Bruce Einhorn in Osaka, with David Rocks in Tokyo

— With assistance by David Rocks

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