Posted by: Kenji Hall on April 25, 2007
Sharp’s numbers today were impressive: For the fiscal year through March, it posted double-digit gains in sales and profits and record highs across the board for the fourth straight year. (Specifically: operating profit rose 13.9% to $1.58 billion on a 11.8% gain in sales to $26.5 billion. Net profit also rose by 14.7% to $862 million.) This year’s stats are expected to be even better.
But Sharp is hardly problem-free. Despite opening a new plant for liquid-crystal display panels in flat-panel TVs, the Osaka company couldn’t keep up with runaway demand. What’s more, the company’s business making solar cells is struggling because of a global shortage of silicon, the raw material in the panels which absorb and convert the sun’s rays into energy. Problems there held the electronic component division’s operating profits—-more than half of overall profits—-to a mere 3.5% uptick.
Of the two, LCDs are a bigger worry for analysts. In 2006, Sharp lost market share falling in iSuppli’s ranking from No. 1 to third, behind Samsung Electronics of Korea and Dutch maker Philips. Once again—following on the heels of the previous year’s huge supply shortfall—Sharp didn’t quite have the stuff to pull off a win during the yearend shopping season.
That’s because while Sharp is ramping up LCD production, its TV assembly plants aren’t big enough, creating a production bottleneck. The company’s new CEO, Mikio Katayama, who was tapped earlier this month, is rushing to get two more plants online in Mexico and Poland as fast as he can. But the lag should let rival Sony jump ahead. Sony expects to sell 10 million LCD TVs this fiscal year, while Sharp’s projection is 9 million.
One sign that Sharp isn't sitting idle is its shift to bigger screen TVs. Last year, 80% of the TV sets it made came with screens larger than 30 inches diagonally, up from 55% the previous year. Going for the bigger sizes means higher sales and fatter profit margins—-a key strategy since TVs make a sizable contribution to the audio-video electronics division. The division accounts for 44% of sales and almost a quarter of operating profits.
Another positive step is Sharp's ambitious marketing push into the U.S. In recent months, it has raised the profile of its brand by spending on TV ads and setting up glass-enclosed displays at major airports and malls in big cities to put the product front-and-center in consumers' minds. “We're a small company so we can't be big everywhere,” says Hiroshi Saji, an executive vice president at Sharp. “The focus has to be either the U.S. or China and right now we're concentrating on the U.S.”
But one look at a breakdown of Sharp's results shows how far the company has to go: The Japanese market accounted for more than 60% of the company’s global sales and a lopsided 88% of operating profits, while North and South America was just 10% of sales and 2% of profits. And competition in the U.S. market is so fierce that Sharp could face even steeper price declines than the annual average of 20% to 30%. But at least it's got its sights on markets beyond its own home shores.