Photographer: Buddhika Weerasinghe/Bloomberg

Sharp Predicts First Profit in Three Years on Costs Cuts

  • Second-quarter operating profit missed analyst estimates
  • Sharp’s stock has doubled in value since early August

Sharp Corp. forecast its first annual operating profit since 2014, citing efforts to cut costs and operate more efficiently after Taiwan’s Foxconn Technology Group bought control of the Japanese electronics maker in August.

Operating profit will reach 25.7 billion yen ($245 million) in the 12 months ending March 2017, the Osaka-based company said in a statement on Tuesday. That compares with a 12.9 billion yen average of 10 analysts’ estimates compiled by Bloomberg. Sharp said sales for the fiscal year would reach 2 trillion yen, compared with analyst estimates of 2.11 trillion yen.

Sharp’s stock has doubled since early August when Foxconn completed its capital injection. While the 289 billion yen rescue package brought the Japanese company back from the brink of bankruptcy, Sharp now needs to prove it can revamp its liquid-crystal display business, stem losses in the solar panel operations and reverse a decline in consumer electronics sales. Tai Jeng Wu, who took over as Sharp’s president in August, delivered his first earnings report in Tokyo on Tuesday.

“Profitability alone is not enough to bring back institutional investors,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co. in Tokyo. “They will need to improve their balance sheet before we can begin to actively look at the stock.”

Indeed, nine out of 11 analysts surveyed by Bloomberg recommend selling shares in the Osaka-based company -- a ratio that has hardly budged since before the rally began, according to data compiled by Bloomberg. There are no buy ratings.

Sharp’s operating profit in the second quarter was 2.6 billion yen, falling short of the average estimate for 10.6 billion yen. Net loss for the fiscal year will probably narrow to 41.8 billion yen, Sharp said. Thanks to Foxconn’s investments, Sharp’s liabilities no longer exceed assets.

For a column on Sharp’s financial performance, click here.

Sales will probably decline 19 percent this year, after a drop in every single business unit in the first half. Revenue in its display operations declined 36 percent in the period, while sales of electronic components and solar panels fell 28 and 34 percent respectively.

“There are many management problems and it’s my job to make the breakthroughs,” Tai said at the briefing. “The plan going forward still requires further consideration. I aim to reveal the strategy in April.”

Sharp is investing in organic LED screens, the technology for low-energy displays slated for adoption in future Apple Inc. devices. Tai said Sharp has to balance the need to develop OLED know-how with the company’s limited resources. Sharp has focused on reorganizing domestic and overseas subsidiaries, including dissolving a joint-venture in Hong Kong and absorbing an industrial equipment unit in Japan. It is consolidating its logistics operations and revising its compensation system.

The company has yet to announce plans for job cuts, but Foxconn Chairman Terry Gou has warned that layoffs may be unavoidable. A close review of the display maker’s operations highlighted a “level of inefficiency throughout Sharp,” and therefore a “very regrettable need” to reduce the workforce, Gou said in a letter to staff in May. Sharp followed with a filing to the Tokyo Stock Exchange saying it would eliminate 7,000 jobs; it later retracted that document and made an amended filing without that number.

Sharp is considering various options for its Mihara and Fukuyama plants in Hiroshima prefecture in southern Japan, Tai said. Options include closing operations and consolidation, but not layoffs, he said.

“We need more time to consider this,” Tai said. “But I can tell you now that we won’t cut jobs.”

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