--Sharp, Panasonic earnings recover somewhat in October-December
from massive losses in previous quarter
--The two companies maintain earnings outlooks for full fiscal
year
--Sharp says planned measures should eliminate doubts about
ability to continue as going concern
TOKYO--Japanese electronics manufacturers Sharp Corp. (6753.TO)
and Panasonic Corp. (6752.TO) improved their performance in the
fiscal third quarter from big losses in the previous quarter,
though they warned they still face a difficult situation.
The last time Panasonic and Sharp announced quarterly results,
in October and November respectively, the two companies slashed
full-year earnings outlooks to forecast record annual losses,
sparking concern about the financial strength of the two iconic
companies. On Friday, Sharp and Panasonic maintained their outlooks
for the full year to March, meaning conditions haven't
worsened.
"I'd say we're still not even at the base," Sharp President
Takashi Okuda said at a news conference, comparing the company's
turnaround plans to mountain climbing. "We are still in a tough
spot financially and earnings-wise, so we're going to accelerate
our structural reforms without easing up."
Sharp's third-quarter loss narrowed to 36.7 billion yen ($398
million) from a year-earlier loss of Y173.6 billion in the same
period a year earlier. On an operating basis, the company bounced
back into the black for the first time in five quarters with a
profit of Y2.6 billion, beating expectations for a loss of Y2.92
billion from analysts polled by Thomson Reuters. Revenue rose 15%
to Y678.2 billion.
Sharp said it was helped by a reduction in fixed costs and
assets from its restructuring program, which included a cut of
about 10% of its workforce. The company has also slashed capital
investment.
The improving results didn't prevent Sharp from reiterating a
cryptic statement that while past losses may have raised
uncertainty about its future as a going concern, planned
countermeasures should eliminate such doubts.
Sharp still needs to find a way to bolster its balance sheet.
Shareholder equity ratio--a measure of financial strength--fell to
9.6% as of end-December compared with 9.9% at the end of September.
Anything below 10% is considered dire. Its credit rating has been
lowered to "junk" status, or below investment grade. It has sold
off Y10.8 billion in assets and securities thus far this fiscal
year, but still needs to raise capital.
Since a Y66.9 billion investment from Taiwanese contract
manufacturer Hon Hai Precision Industry Co. (2317.TW) fell through,
Sharp has been working to resuscitate the deal or strike a capital
alliances with other companies. Sharp said talks with Hon Hai are
ongoing, with Mr. Okuda saying the company aims to strike a deal
before a late March deadline.
The company has also reached an agreement to accept a capital
injection of up to Y9.9 billion from Qualcomm Inc. (QCOM), but that
would still leave Sharp short of its target of raising Y66.9
billion through new equity by the end of March.
Helped by aggressive cost-cutting and a weaker yen, Panasonic
returned to a third-quarter profit after incurring a hefty
restructuring loss a year earlier. The profit rebound may be
short-lived with the company projecting a loss again in its current
quarter to March.
Panasonic swung to a third-quarter profit of Y61.4 billion from
a year-earlier loss of Y197.6 billion. The result comes three
months after Panasonic reported a near-Y700 billion loss, one of
the biggest-ever quarterly losses by a Japanese manufacturer. Sales
fell 8% to Y1.801 trillion.
Under President Kazuhisa Tsuga, who declared that the
electronics conglomerate is no longer a "normal company" because of
its inability to generate consistent profits, Panasonic is
undergoing a radical shift in strategy. He is expected to unveil a
three-year business plan in late March with more restructuring
measures.
It is turning away from its once mainstay consumer electronics
business to focus on more industrial products that offer better
profit margins. Panasonic plans to streamline its operations,
focusing on fewer businesses and employing less staff. Over the
last year, it has reduced its headcount by 40,000 employees
including 10,000 from its domestic workforce.
The restructuring is showing signs of paying off, even as sales
of its consumer electronics products plunge. In its audio-visual
unit, Panasonic returned to profit in its fiscal third quarter
despite a 20% sales decline. The benefits are coming in large part
from television sales, which have seen a Y90 billion improvement in
operating profit since April.
"We're still in a transition phase," said Panasonic Chief
Financial Officer Hideaki Kawai. "We've managed to return to
profit, but it's far from sufficient. We need to take the whole
company and make a decisive review of our management strategy."
Instead of clawing for razor-thin margins against South Korea's
Samsung Electronics Co. (005930.SE) and LG Electronics Inc.
(066570.SE) in the competitive television industry, Panasonic sees
more opportunity in constructing environmentally friendly buildings
equipped with its energy-saving appliances and renewable energy
products.
For the full year to March, Panasonic maintained its forecast
for a loss of Y765 billion, an operating profit of Y140 billion,
and sales of Y7.3 trillion.
The yen's slide since mid-November offers Panasonic some relief.
A lower yen increases earnings made abroad when repatriated back
into yen and eases price competition with overseas rivals.
Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and
Kana Inagaki at Kana.Inagaki@wsj.com
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