Bloomberg News

Panasonic-Sharp Win Time for Turnarounds as Yen Boosts Earnings

February 01, 2013

Panasonic Corp. (6752) and Sharp Corp., struggling to recover from record losses, may have won some time after job cuts, asset sales and a weaker yen helped them improve third-quarter earnings.

Panasonic, Japan’s second-largest TV maker, posted 61.3 billion yen ($665 million) in net income for the three months ended Dec. 31, according to a statement today. Analysts expected a 17 billion-yen loss, based on the average of three estimates compiled by Bloomberg. Sharp, Japan’s No. 3 TV maker, reported its first operating profit in five quarters.

The weaker yen is helping the two companies and larger rival Sony Corp. (6758) weather slowing demand and competition from Samsung Electronics Co. (005930) as they seek to restructure operations. Sharp’s improving performance may also bolster its hand in talks with possible investor Hon Hai Precision Industry Co., said President Takashi Okuda.

“It’s looking increasingly likely that they’ll be able to survive,” Mitsushige Akino, Tokyo-based chief fund officer at Ichiyoshi Asset Management Co., said of Sharp and Panasonic. “It’s important that they carry out drastic reforms.”

Sharp made an operating profit, or sales minus the cost of goods sold and administrative expenses, of 2.6 billion yen in the three months ended Dec. 31. It had an operating loss of 24 billion yen a year earlier.

Loss Forecasts

The two TV-makers maintained forecasts for full-year net losses totaling $13.2 billion, even as Panasonic Chief Financial Officer Hideaki Kawai said the weaker yen may help the company beat its 765 billion-yen loss estimate. The yen, which has declined to the weakest against the U.S. dollar in 2 1/2 years, boosted Panasonic’s third-quarter operating profit by 3 billion yen, the company said.

Sony, which reports earnings Feb. 7, is forecasting net income of 20 billion yen for the year ending March 31, ending a four-year streak of losses.

Panasonic is in “transition” toward profitability, Kawai told reporters in Tokyo. The company has eliminated more than 38,000 jobs in the past year to cut costs.

The maker of Viera TVs and Lumix cameras made a third- quarter operating profit, or sales minus the cost of goods sold and administrative expenses, of 34.6 billion yen. That compared with an operating loss of 8.1 billion yen a year earlier.

Panasonic Plan

Panasonic is due to announce a new medium-term plan by the end of March. President Kazuhiro Tsuga, who was promoted in June, has said the company may pull out of businesses with operating margins of less than 5 percent by March 2016.

“Panasonic should go faster,” said Tetsuro Ii, president of Commons Asset Management Inc. in Tokyo. “Significant structural reforms haven’t occurred yet. The company should accelerate sales of unprofitable assets and divisions.”

Third-quarter sales dropped 8 percent to 1.8 trillion yen, led by a 12 percent drop in domestic sales to the lowest in at least eight quarters. Sales of audio-visual equipment -- such as flat-panel TVs, Blu-ray recorders and digital cameras -- fell 20 percent to 389 billion yen.

Sharp’s net loss was 36.7 billion yen, compared with a loss of 174 billion yen a year earlier, according to a statement. The Osaka-based company was expected to post a 34 billion-yen loss, based on the average of three analyst estimates compiled by Bloomberg.

Hon Hai

Sharp agreed in December to sell as much as 9.9 billion yen of new shares to Qualcomm Inc. The chipmaker has so far bought 4.9 billion yen as part of the two-step transaction. Sharp also has held talks about selling a stake to Hon Hai. The Apple assembler’s founder Terry Gou bought a stake in a Sharp LCD plant last year.

“We want to proceed with the negotiations with Hon Hai based on the fact that our trend is starting to rise,” Sharp President Okuda told reporters. “Until now, there had only been negatives for us.”

Japan’s largest maker of liquid-crystal displays reiterated that it expects an annual loss of 450 billion yen, its second straight unprofitable year. Fourth-quarter orders for small- and mid-sized LCD panels for smartphones missed estimates and may have been affected by slower-than-estimated sales of Apple Inc.’s iPad and iPhone 5.

The U.S. phone-maker is Sharp’s single biggest customer, accounting for 3.4 percent of sales, according to data compiled by Bloomberg.

“Our financial situation is tough,” Okuda said. “We will speed up our structural reform to post an operating profit in the second half and post net income next fiscal year.”

The TV maker said last year there was “material doubt” about its ability to survive after it hemorrhaged 103 billion yen in cash from operations in the six months ended September. The company has 200 billion yen of convertible bonds maturing this year, according to data compiled by Bloomberg. Its debt was cut to junk by Fitch Rating and Standard & Poor’s last year.

“There were at least no negative surprises in the results for Sharp and Panasonic,” said Makoto Kikuchi, chief executive officer at Myojo Asset Management Japan Co., a Tokyo-based hedge fund advisory firm. “Still, it’s hard to see how they can post net incomes next fiscal year.”

To contact the reporters on this story: Mariko Yasu in Tokyo at myasu@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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