The 100-year-old inventor of mechanical pencils needs to pen a new plan to make it to 101.
Sharp Corp., Japan’s biggest liquid-crystal display maker, put up its Osaka headquarters and some plants as collateral last week to win bank loans after its credit ratings were cut to junk. The supplier to Apple Inc. is also renegotiating a stock sale to Taiwan’s Foxconn Technology Group as it tries to recover from record losses and a 70 percent slump in shares this year.
Within six months of assuming office, President Takashi Okuda, 59, is firing employees for the first time in six decades after widening Sharp’s full-year loss forecast eightfold on plunging demand for TVs. Sharp’s troubles are symptomatic of what’s ailing Japanese consumer electronics companies Sony Corp. and Panasonic Corp. as they compete with TVs and phones made by South Korea’s Samsung Electronics Co. and LG Electronics Inc.
“Sharp isn’t in a situation to think about the next century,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm. “It’s a matter of whether the company can survive in the next 12 months.”
Okuda must raise funds for a company that’s burning through cash. Total liabilities reached 2 trillion yen ($26 billion) at the end of June, the highest since at least 2003 -- or more than four times sales in that quarter, according to data compiled by Bloomberg.
Ratings companies aren’t making it any easier -- Moody’s Investors Service and Standard & Poor’s both downgraded Sharp’s credit ratings to speculative grade, or junk. Okuda’s efforts to raise funds by selling equity to Taiwan billionaire Terry Gou’s Foxconn group and its flagship Hon Hai Precision Industry Co. stalled after Sharp’s shares plunged to a 37-year low.
Foxconn wants a stake in Sharp to secure access to the latest technology for parts used by its biggest customer, Apple. In offering a lifeline, Gou is betting that Sharp, which invented the mechanical Ever-Ready Sharp Pencil in 1915, will continue providing it with key components for the iPads and iPhones that Foxconn assembles, while ensuring one of Apple’s important suppliers survives.
“If Hon Hai can’t come soon to help Sharp speed up development of products, lower manufacturing cost, improve supply-chain management, it’s probably hard to make an achievement,” Gou said in Tokyo last month. Meetings between the two companies during Gou’s visit didn’t produce a final agreement.