Critical Analysis Paper Sharp

Sharp’s third-quarter results showed a very disappointing performance. The company reported a ¥ 249. 1 billion ($3. 12 billion) loss. Moreover, it is forecasting a ¥ 450 billion, or $5. 6 billion, a loss for the fiscal year through 2013. Apparently, the company is burning through more cash than it is generating and having difficulty in securing short-term financing. Also, the company is considering selling some holding in other companies and office building in Tokyo.

Furthermore, it’s thinking to sell television assembly plants in Mexico and China, which would reduce its payroll by 3,000 jobs, added to the 5,000 positions assigned for layoff earlier this year. The company has decided to cut the current Sharp’s payroll by 14%. In addition, Sharp’s shares are down 75% this year. This paper will conduct a situation analysis of the internal and external environment of Sharp’s weak performance. It will also summarize the primary causes of the company’s weak performance.

Internal Analysis of Financial Problems

Currently, the company faces two problems: it is under pressure to reduce interest-bearing debt, which increased to ¥ 1. 25 trillion since June 2011 and, also, needs to repay ¥ 200 billion of convertible bonds that mature in September 2013 (Daisuke Wakabayashi). At the end of June 2012, the company’s cash, accounts receivable, inventory, and other assets couldn’t cover its short-term liabilities. The company is struggling to raise cash. Sharp’s net loss for the first half included ¥ 84. 4 billion in restructuring costs, including a ¥ 30. billion impairment of assets in its solar batteries unit, a ¥ 53. 4 billion write-downs on inventory, and a ¥ 61. 0 billion write-downs on deferred tax assets. Also, at the end of September, Sharp’s shareholder equity ratio fell to below 10 percent, which is half the rate generally considered a healthy minimum. Sharp remains highly dependent on short-term borrowings. Weak internal cash flow has forced the company to pay off unsecured promissory notes mostly with bank borrowings (Reuters). In addition, the company is currently considering an alliance with other companies.

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External Analysis Product Demand

Sharp’s main products, LCD TV and flat panels were accounted for 60% of total revenue in 2012, however, the demand substantially weakened, especially in comparison to Korean rivals. For the first time in the company history, shipments of LCD TVs fell year-over-year, declining just over 3% to 43 million units. The decline had a considerable impact on the market, with total TV shipments falling almost 8% year-over-year in the first quarter of 2012, the drastic decline since the second quarter of 2009.

When the market slowed down, Sharp has been left with excess capacity at its domestic plants. Sales of LCD TVs nearly halved in the October-December quarter. The manufacturer of electronics products and their components also reported quarterly sales of solar cells fell by a third from a year ago, slowing demand and increased competition from Chinese makers (James Topham).

Global Economy

Sharp has struggled with a slow economy, losing the power it once got from the transition to global digital broadcasting and from subsidies for purchases of energy-efficient goods.

Demand for LCD televisions in developed economies has been saturated; however, growth in developing markets is slowing. Also, the strong yen has made Sharp’s products more expensive overseas. Therefore, it is difficult for the company to compete in the global market. Product prices were also affected by Japan’s relatively high labor cost, electricity, imported fuels, and raw materials. In addition, the euro debt crisis became another reason for the slow growth in the world economy (James Topham). Competition Sharp faces increased competition from very large electronic companies such as Apple, Samsung, and LG.

Samsung Electronics Co., Ltd, and LG Electronics, Inc. have generated better profits and strengthened market positions in the TV and panel businesses during 2012, supported by an improved product mix. Samsung’s flat-panel TV revenue share remains the largest in the industry, almost 26% (Dan Graziano). Samsung is also the top brand in the key segments of LCD TV, 40”+, LED-backlit LCD, and 3D TV. Also, the company benefits from favorable exchange rates and aggressive investments. Samsung’s current capitalization is $163 billion and Apple’s $634 billion.

As opposed to Sony, Panasonic and Sharp combined are now worth only $54 billion at current market values (Michael Fitzpatrick).

Summary

Based on internal and external analysis of Sharp’s recent activities, the primary causes of the company’s poor performance are:

1. the company is struggling to raise internal cash flow and, therefore, cannot cover its short-term liabilities;
2. the demand for LCD and flat-panel TVs has substantially weakened due to the global economy slow down;
3. Sharp is facing fierce competition from Samsung, LG, and Apple, which currently holds the largest market shares in the electronic manufacturing industry.

Bibliography:

1. WAKABAYASHI, DAISUKE. Sharp Says Its Future Is at Risk. 1 Nov. 2012. 7 Dec. 2012 ;http://online. wsj. com/article/sb10001424052970204712904578091761289023722. html;.
2. Reuters. TEXT-S;P summary: Sharp Corp.. 30 Nov, 2012. 8 Dec, 2012 ;http://www. reuters. com/article/2012/11/30/iduswlb148420121130;.
3. Topham, James. Sharp Corporation Blames Falling LCD TV Prices, Increase In Yen For Forecast $3. 8 Billion Loss. Feb. 2012. 8 Dec. 2012 ;http://www. huffingtonpost. com/2012/02/01/sharp-corporation-lcd-prices_n_1246028. html;.
4. Graziano, Dan. GLOBAL LCD TV SHIPMENTS FALL FOR THE FIRST TIME EVER. 21 Jan. 2012. 8 Dec. 2012 ;http://bgr. com/2012/06/21/global-tv-sales-lcd-shipments-down/;. 5) Fitzpatrick, Michael. Fear and loathing in Japan. 18 Sep. 2012. 8 Dec. 2012 ;http://tech. fortune. cnn. com/2012/09/18/fear-and-loathing-in-japan/;.