Sharp can't seem to make flat-screen TVs fast enough. On Jan. 11, the Japanese company's president, Katsuhiko Machida, unveiled plans to raise output of liquid-crystal-display (LCD) sets by 50% in the fiscal year starting April, 2006, to 6 million units. That's a faster-than-expected buildup that would help the world's No. 1 LCD TV maker defend its top spot. The massive push will cost billions of dollars through 2008, but by that time, Machida predicts his factories will be churning out the equivalent of 20 million 32-inch LCD TVs a year.
And not a moment too soon. While Sharp's earnings are stellar, its share of the LCD TV market shrank in the first nine months of 2005 to around 19%, from nearly 25% in 2004, according to market-research firm DisplaySearch. That's because Sharp badly underestimated global demand for flat-screen TVs. As a result, plenty of consumers opted for sets made by LG Philips (LPL) or Korea's Samsung Electronics instead.
"Sharp lost LCD-TV market share in 2005 because of a panel production capacity shortage," Merrill Lynch analyst Hitoshi Kuriyama wrote in a Jan. 11 report. But since Machida announced the new strategy after market close that same day, its shares have shot up some 6.3%, to the highest level since mid-2004.
TURF WAR. Sharp isn't just keeping an eye on the LCD TV market. As the Osaka-based tech giant goes after the fatter margins of larger-screen TVs, it's treading in territory that was once the domain of plasma TV makers. That wasn't always the case, since, until recently, few LCD makers could make big glass sheets cheaply enough to compete with plasma manufacturers.
But don't expect Sharp to just barge in without facing a fight. On Jan. 10, the world's No. 1 plasma-TV maker, Matsushita Electric Industrial (MC), said it would spend a hefty $1.6 billion on what will be the world's largest plasma TV factory when it opens in July, 2007. That factory, the company's fifth, will expand Matsushita's annual output limit to 11 million sets, as it tries to defend its 26% market share in plasma TVs.
The turf war should give consumers more options when shopping around to replace that old, space-hogging cathode-ray tube set. For TV makers, it will likely mean stiffer competition and more drastic price declines than the annual 25% to 35% falls they've faced so far.
AHEAD OF SCHEDULE. Sharp is wagering that it has a technological edge over the competition. It has been building a so-called eighth-generation (G8) plant in Kameyama city right next to an existing facility. At the new G8 factory, engineers will turn out the specialized glass sheets from which LCD TV screens are made. It will mark the first production of glass sheets as large as 86 in. by 96 in. In this business, size matters, because a bigger glass sheet yields more TV panels. Each one of Sharp's new sheets will make eight 40-in. panels. Its current 60-in. by 90-in. sheets can make only three.
Sharp's original plan was to ramp up slowly once the new $1.3 billion factory is opened in October. Now, to make up for lost time and market share, it plans to go all out -- doubling output from 15,000 glass sheets a month to 30,000 by March, 2007 -- nine months ahead of schedule. By 2008, output will triple, to 90,000.
Sharp will also be cranking out more panels at its older Kameyama plant -- a sixth-generation (G6) facility whose production methods are kept so secret most Sharp employees are barred entry. There, workers are due to escalate to 60,000 sheets in March, 2006, from 51,000 now. Machida has earmarked nearly $3.5 billion just on the LCD business and says he's even considering building more factories overseas, possibly in Spain or Mexico, where Sharp already has facilities. "We need to show we can meet demand," says Machida. "Our credibility is being questioned."
A NEW KING? The Japanese aren't alone in predicting heady growth. With flat-screen TV sales forecast to triple from 2005 to 2008, LG Philips and Samsung are spending to boost capacity at plants in Korea, as is Taiwan's AU Optronics. Researcher DisplaySearch estimates that flat-panel TV makers sold 26.5 million sets in 2005 , including nearly 19 million LCD TVs and more than 5 million plasmas. By 2008, the figure could reach 77 million, with LCD TVs rising to 60 million units and plasma to 13 million.
By then, Sharp is betting LCD sets can oust plasma as king of the giant screens. Among flat-screen TVs 37 in. and larger (the biggest on the market now is 65 in.), plasma outsells LCD four to one. DisplaySearch predicts LCD TV makers can close the gap with plasma makers by 2008, and Sharp's Machida thinks "it could happen even sooner, maybe in 2007." But Morgan Stanley says Sharp could face a tough challenge making LCD TVs at a lower cost than plasma TVs.
Will Sharp's big move in LCD screens pay off? The company is already banking it will. If all goes as planned, the payoff could be substantial, since its LCD business accounts for a third of all sales. Sharp now says its sales target for the fiscal year beginning April, 2006, is $26 billion, up from this year's forecast of $24 billion in sales. It expects net profits of $756 million for 2005, a rise of 5.9%.
Despite the rosy numbers, many challenges lie ahead. Industry insiders caution that Sharp will need to stay on top of its game by trimming costs at factories and raising its brand profile in the U.S. and Europe. That's a lot easier said than done. Still, with its big-screen strategy finally in gear, at least Sharp now has a fighting chance.
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