Sharp Corp <6753.T>, the world's No.3 LCD TV maker, doubled its loss estimate for the year just ended on a slump in sales of its TVs and panels, but it brought forward plans for a cost-efficient new factory to cut costs.
The company also said it would shift overseas some output of key components such as panels and solar cells with local partners to lessen the impact of foreign exchange fluctuations and rein in capital spending, in a departure from its usual strategy of making core products at home.
But market players said Sharp faces an uphill task to make the new business model work.
If you take a look at what happened to Toyota <7203.T> in this downturn, you would wonder if the new step would be good for Sharp, said Fujio Ando, senior managing director at Chibagin Asset Management.
Toyota is being hit by slow sales in Japan. But it is suffering more in some of its overseas markets and at some of its overseas plants such as one in Russia as flexible operations and timely production adjustments are difficult.
Sharp, which trails Samsung Electronics Co Ltd <005930.KS> and Sony Corp <6758.T> in LCD TVs, said panel demand was recovering, prompting it to move up its start-date for production at its new plant by five months to October.
Getting the world's most cost-competitive factory onstream as quickly as we can will be a powerful weapon to win in this tough climate, Sharp President Mikio Katayama told a news conference.
Sharp's 380 billion yen ($3.8 billion) plant in western Japan will process so-called 10th-generation glass substrates, which are bigger than earlier-generation substrates and help reduce per-panel production costs.
Earnings were hit by mounting inventory from unsold LCD panels and TVs as consumers rein in spending amid the global economic crisis, as well as restructuring costs.
Sharp now expects an operating loss of 60 billion yen -- its first-ever annual operating loss and double its estimate in February. That compares with a consensus of a 37.3 billion yen loss in a poll of 21 analysts by Reuters Estimates.
Its share price ended down 6.1 percent at 813 yen, against the Nikkei's <.N225> 2.7 percent fall. It had dropped as much as 7.7 percent after Sharp said it would revise its estimates.
Analysts say Sharp is ramping up production in the face of uncertain demand.
Utilization rates in the LCD panel sector are recovering, but they are still at only 70 percent to 80 percent, Goldman Sachs analyst Yuji Fujimori wrote in a note to investors on Tuesday, when he downgraded the stock to sell from neutral.
This leaves concerns about the market's capacity to absorb supply increases, he wrote.
The new LCD plant would have an initial capacity to handle 36,000 glass substrates a month, which will eventually be doubled to 72,000 units.
Sharp is also building a new solar cell plant in Japan. The new plant, which is designed to make thin-film solar cells, is scheduled to start output by March 2010.
In its initial step toward joint investments and joint production with overseas partners, Sharp said in November it and Italy's Enel
Sharp is the world's fourth-largest solar cell maker behind Q-Cells
(Editing by Hugh Lawson)