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Sharp Corp. Issues a Dire Warning

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Television and LCD display producer Sharp indicated its strongest warning to-date indicating that the company has serious concerns as a going concern without an infusion of new capital.  The company forecasted a near doubling of operating loss to $5.63 billion and is struggling to make some form of operating profit to justify a bailout.

According to a report published by Reuters, in order to secure fresh working capital loans, the company has had to mortgage most of its offices and factories in Japan, including the specific factory that is producing LCD displays for Apple’s iPhone and iPad. That particular factory remains challenged in ramping-up production to meet Apple’s high volume requirements.

Readers may recall previous reports in March that indicated that global contract manufacturer parent company Hon Hai Precision Industry Corp. (parent of Foxconn) was prepared to take an equity stake in Sharp’s LCD development and factory operations, with the implications that Hon Hai would become Sharp’s largest shareholder.  Those talks continue to drag-on, and in its latest statements, Sharp still expects that deal to close by March of 2013.  By delaying its investment, Hon Hai is making a calculated risk that Sharp can prolong the current financial bleeding while fixing its product strategy problems. Then again, will Apple itself be willing to lend financial assistance?

Reuters and other reports quote seasoned industry observers as indicating that Sharp may not have a future given its current rate of decline and either a continued financial infusion or some miraculous blockbuster profitable product.

Then again, Sharp may be yet another example of the rapid declining fortunes of the once powerful Japan-based consumer electronic producers.  Panasonic also announced grim news this week, a $9 billion quarterly loss, amounting to a cumulative $19 billion in losses over the past two years.

In its reporting of Panasonic results, The Wall Street Journal noted the following: “Japanese companies can’t match the manufacturing might of South Korea’s Samsung Electronics Co., nor can they replicate the brand cachet of Apple Inc.. The strong yen and a footprint of aging Japanese factories combine to deal another blow to their competitiveness.”

That statement tells all about the current state of many of Japan’s former consumer electronics leaders.

Bob Ferrari.

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