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Nothing Flat About Sharp's Performance


When Katsuhiko Machida took over as president of Japan's Sharp Corp. (SHCAY) in 1998, he wasted no time in shaking up the 93-year-old Osaka-based consumer-electronics company. His first major announcement was that Sharp would abandon cathode-ray-tube (CRT) TVs and focus on flat-screen liquid-crystal displays.

The move was a shock -- not least for Sharp's engineers. At the time they didn't have the technology to make LCD TV screens much bigger than 15 inches, and critics pointed to concerns over everything from picture quality to high production costs. But Machida, just the fourth CEO in Sharp's history, made the change a fait accompli by publicly announcing it. "It seemed quicker and easier to make [our plans] public," recalls Machida, 62, who joined Sharp in 1969 after completing a degree in agriculture at Kyoto University. "There was some panic at first, but the engineers committed."

Today the switch is paying off in sacks full of yen -- a testament to Machida's skills and vision as a Star manager. In April, Sharp posted record earnings of $708 million for the year ended in March, a rise of 26.6% over a year earlier. Operating margins reached 5.9%, among the best of Japan's big consumer-electronics makers.

Despite rising competition, Sharp remains the top-ranked producer of LCD panels for TVs and other applications, which account for 38% of the company's profits. "It was a huge decision by Machida to invest heavily in the LCD TV and panels business, but he was right," says Yasuo Nakane, an analyst at Deutsche Bank Securities Inc. (DB) in Tokyo. "Sharp effectively created a market for themselves."

Machida reckons there's plenty of room to keep profits growing. For starters, he believes the LCD TV business is nowhere near mature. Sharp expects sales to surge as prices come down. To help meet demand, Sharp opened a new LCD TV plant in Kameyama, Japan, in January, and construction on a $1.4 billion sister facility will begin in October, 2006. Sharp says the second plant will eventually make 30,000 LCD panels a month, each of which can be made into eight 40-in. or six 50-in. TV screens.

Sharp is also winning plaudits for the smaller screens it provides makers of handheld game machines, such as Sony's (SNE) PlayStationPortable and the Nintendo (NTDOY) DS, which work just as well in bright or low-light conditions. Analysts say Sharp will need to stay on its toes if it wants to keep its market-leading margins. But Machida isn't worried. He points out that even the dull-as-dishwater white goods that Sharp also produces can benefit from new technology. This year, for example, the company is launching overseas a new, healthier electronic oven that cooks food while reducing fat and salt by using steam heated to 300C. "People say the appliance business is a mature industry, but that's not true at all," says Machida. "There are no limits to innovation." This time, Sharp's engineers are ready.

By Ian Rowley


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