Sharp Issues Profit Warning as Competition Bites

Japan's Sharp Corp warned on Monday it will likely miss this year's earnings target as an intensifying price war with cheaper Asia rivals in display panels and TVs cuts deep into the consumer electronics maker's profit margins.

Sharp shares skidded 9 percent to two-year lows after the maker of screens for Apple Inc's iPhones said it now doesn't expect to meet an earlier forecast a 30 billion JPY ($255 million, roughly Rs. 1,386 crores) net profit in the 12 months ending March.

The warning dashed investor hopes that growing sales to Chinese smartphone makers like Xiaomi Technology Co Ltd could provide a new springboard for Sharp as it emerges from years of restructuring.

Sharp and Japanese technology firms like Sony Corp have lost billions of dollars in recent years as aggressive, cash-rich competitors like South Korea's Samsung Electronics Co and China's Huawei poached customers. Sharp alone racked up combined losses of around $8 billion (roughly Rs. 49,290 crores) over two years up to April 2013 before cost cuts and restructuring helped it eke out a profit in its latest fiscal year.

Due to report earnings for the period ended December on Feburary 3, Sharp didn't issue a new net profit estimate. Earlier, the Nikkei business daily reported Sharp could post a net loss in the "tens of billions of JPY" this fiscal year, without identifying the source of its information.

Sharp's president told Reuters earlier this month that meeting its earlier forecast would be "very tough". At 0500 GMT, Sharp shares were down 9 percent at 229 JPY, giving the company a market value of under 390 billion JPY - nearly two-thirds less than what it was worth three years ago.

In recent years, it has cut thousands of jobs and exited unprofitable operations such as solar panel production in Europe in an attempt to bolster its finances. It also received a $4.4 billion (roughly Rs. 27,109 crores) bailout from its banks, issued new shares and took in equity investments from Samsung and Qualcomm Inc.

A person familiar with the situation said that since the company was now likely to miss its profit target, included in a previous drafted business plan for the 2013-2015 fiscal years, it was now considering drafting a new plan for 2015-2017.

In a statement on Monday, Sharp said the yen's quick slide versus other currencies has also undermined earnings it books from consumer goods it manufactures overseas but imports back to Japan to be sold in JPY.

The Nikkei reported Sharp's operating profit for the current fiscal year is likely to around be 50 billion JPY - around half the amount of the company's previous forecast and half the operating earnings it reported last year.

© Thomson Reuters 2015