How can Sharp save itself despite huge losses in LCD business?

A year later, huge losses hit Japanese home appliance giant Sharp again . Faced with losses, Sharp put forward a new mid-term plan with a large-scale layoff, financial assistance and organizational restructuring as the main themes.

The "old" mid-term plan, which was expected to achieve a net profit of 80 billion yen in fiscal 2015, has proven to be a failure. Can the "new prescription" save Sharp, which is still obsessed with LCDs?

New mid-term plan announced

On May 14, Sharp announced its long-awaited new mid-term plan.

Sharp said it will recruit about 3,500 employees who voluntarily retire in Japan starting in June this year, which is 500 more than the layoffs when Sharp hit its biggest deficit crisis in 2012.

According to reporters, these employees will retire at the end of September this year, and Sharp expects to pay about 35 billion yen for this.

Along with the massive layoffs, Sharp received a total of 225 billion yen in financial aid. This is the second large-scale aid Sharp has received in the past three years. Previously, the outside world had rumored that the figure was 150 billion yen.

Sharp said that in order to improve the deteriorating financial environment, it will accept a total of 200 billion yen in financial assistance from Mizuho Bank and Mitsubishi UFJ Bank in the form of priority stock issuance.

Sharp will also receive an investment of 25 billion yen from Japan's Industrial Innovation Fund in the same way.

It is worth noting that the Japan Industrial Innovation Fund can be regarded as Sharp's rival in the LCD field.

In 2012, it merged the LCD businesses of Hitachi , Toshiba and Sony to form Japan Display (JDI). Currently, Sharp remains the company's largest shareholder with a 36% stake.

Sharp's efforts to improve the capital environment are not limited to this.

It is reported that in order to make up for the losses, Sharp plans to significantly reduce its capital from the original 120 billion yen to 500 million yen. However, as of press time, the reporter has not received a response from Sharp China.

In addition, organizational reforms aimed at making the company's structure flatter and more efficient will begin in October this year.

Sharp will break up the original structure and divide all businesses, including LCD panels, into five internal companies. In its mid-term plan, Sharp said that these companies will establish a comprehensive system from production to sales to cope with changes in the market environment facing each business.

Huge loss again

Behind the new mid-term plan is the huge loss Sharp made in fiscal 2014. The original mid-term plan, which was expected to make a profit of 80 billion yen in fiscal 2015, proved to be a failure.

On May 14, Sharp announced its financial report for the 2014 fiscal year (ending March 31, 2015), in which it recorded a net loss of more than 222.3 billion yen (approximately RMB 11.5 billion).

In the same period last year, Sharp achieved a net profit of 11.6 billion yen after suffering a combined loss of 900 billion yen in the 2011 and 2012 fiscal years.

Sharp apparently did not anticipate the severity of the losses.

Sharp had optimistically predicted a profit of 50 billion yen in fiscal 2014. However, in February this year, Sharp President Kozo Takahashi announced that the company's operating results for fiscal 2014 would end up in the red, with a deficit of about 30 billion yen. The actual loss was more than seven times what Sharp had expected.

This new mid-term plan, which involves more layoffs and more financial aid than rumored, also suggests that Sharp's current situation is worse than the outside world expected.

According to the financial report reviewed by the reporter, as of the end of fiscal year 2014, Sharp's net sales decreased by 4.8% year-on-year, and the annual dividend was canceled for three consecutive years.

In addition, Sharp's net assets have also shrunk significantly.

As of the end of fiscal 2014, Sharp had a net asset of 44.5 billion yen, less than a quarter of the same period last year. In fiscal 2014, Sharp's cash flow from operating activities also shrank more than 10 times compared with the same period last year.

Takahashi Kozo said at a press conference in Tokyo that Sharp's "performance is becoming increasingly severe" and apologized for the huge losses.

The financial report shows that the main reason for Sharp's losses is the equipment impairment treatment of Kameyama Plant in Mie Prefecture, which is Sharp's main LCD panel production plant, and the valuation loss caused by the deterioration of the market in the field of photovoltaic cell raw materials. This brought Sharp an impairment loss of 104 billion yen.

What lies behind this is actually the decline in performance of main products such as LCD panels and photovoltaic cells.

The annual report shows that the sales of the Energy Solutions Division, whose main products are photovoltaic cells, fell by 38.3%, and the sales of the Digital Information Division also fell by 8.6% due to the decline in sales of LCD TVs and mobile phones.

Correspondingly, the LCD panel business, which is controlled by the TV and mobile phone markets, also saw its sales decline by 5.1% compared with the same period last year.

The small and medium-sized panel business, which contributed to Sharp's profits last year, failed to maintain its upward trend this year. Dong Min, general manager of Aowei's black electronics business unit, told reporters, "The prices of small and medium-sized panels fell last year and are still expected to fall this year. This is because the supply of panels has increased."

Still don't give up LCD

Although LCD is still an important reason for Sharp's losses, Sharp still has no intention of giving up LCD.

There were previous rumors that Sharp wanted to separate its LCD business, which had been dragging down its performance, from the main company in order to reduce the burden.

One example is that Sharp's 10th-generation line, which was previously named Sharp Display Co., Ltd., was renamed Sakai Display Co., Ltd. after receiving investment from Foxconn . After operating independently, the previously idle production capacity of the 10th-generation line was also released due to the product demand brought by Foxconn.

But from the new mid-term plan, it seems that the LCD business will eventually remain in Sharp in the form of a separate internal company.

Dong Min told reporters that establishing independent business companies is a common practice for all Japanese companies. Separating and independently accounting will help each subsidiary improve efficiency.

The LCD business, which plays a vital role within Sharp, will continue to play an important role in Sharp's new mid-term plan.

According to the 2014 financial report, the LCD panel business accounted for about 30% of Sharp's consolidated net sales. The asset value of the LCD business company is estimated by Japanese media to be around 300 billion yen.

But what cannot be ignored is that Sharp, which is obsessed with LCDs, no longer has an advantage in LCDs.

Technology is no longer a barrier for Sharp to limit the entry of other competitors. The construction of numerous 8.5-generation lines has changed the situation of large-size panels being in short supply.

The increase in competitors has led to a fierce price war for Sharp's LCD panels, which has also led to a sharp drop in profits for Sharp's small and medium-sized panels since the second half of last year. Takahashi Kozo also admitted that "poor adaptability and weak cost competitiveness" are the reasons for Sharp's losses.

Dong Min told reporters that the small and medium-sized panels of BOE, a local panel manufacturer, have already ranked first in the global market share. In the Chinese market, Sharp is also engaged in a fierce price war with JDI, another Japanese company.

The 225 billion yen in aid will obviously allow Sharp to take a breather in the face of huge losses. But in the face of the mid-term plan to achieve an operating profit of 80 billion yen in 2015 and a net profit in fiscal 2016, can LCD panels save Sharp?

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.