Sharp Corp has suspended production at two Japanese liquid crystal display (LCD) panel plants until early May as it confronts slumping domestic demand for televisions and shortages of a gas used in panel production, the company said on Monday.

For Sharp, whose television sales are focused on the domestic market, the steep fall-off in consumption following the March 11 earthquake and tsunami will be particularly painful in a year that was already expected to bring a slide in TV sales.

Following the disaster, demand for flat-panel televisions was not as strong as we had anticipated, said Sharp spokeswoman Miyuki Nakayama. We have a month's inventory on hand.

Sharp CEO Mikio Katayama had said days before the quake that he expected the company to beat its LCD TV sales forecast of 15 million units for the year to the end of March 2011.

But research firm BCN said Japan's total March sales of flat-panel TVs came to two-thirds of the previous year's figure, after showing some signs of recovery after government incentives were slashed in December.

Domestic television sales had been expected to slide again after July, when Japan completes a switch to digital terrestrial broadcasting, but BCN analyst Eiji Mori said there could be a boost later in the year as northern Japan starts to recover.

SURPLUS INVENTORIES

Production was halted earlier this month at Sharp's Kameyama plant in Mie Prefecture and its state-of-the-art 10th generation Sakai plant in Osaka, which make large LCD panels for TVs.

Analyst Yuji Fujimori of Barclays Capital retained his underweight rating on Sharp's shares and revised down the target price to 700 yen from 780 yen. He now estimates the company will post a loss of 7 billion yen ($82.6 million) in the April-June period, compared with his previous estimate of an 11 billion yen profit.

But Fujimori said markets would welcome the decision to bring surplus inventories back to normal.

Shares of Sharp ended down 0.8 percent, compared with a 0.5 percent fall in the broader Nikkei index.

Sharp aims to maintain steady production of smaller LCD panels for smartphones and other devices.

Currently we are seeing more demand for small and midsized panels than for large ones, so we are focusing on using the gases we procure for production in that segment, Nakayama said.

Sharp expects to resume operations at the two large panel plants after the string of Golden Week holidays at the end of April and early May, Nakayama added.

Production at the Taki and Tenri factories in Nara prefecture, which produce smaller LCD panels, will continue.

Sharp declined to specify which gases were running short, but research firm DisplaySearch and Barclays said nitrogen trifluoride (NF3) was used in the production of LCD panels.

One major maker of the gas, Kanto Denka Kogyo, has been unable to manufacture it as normal due to the effects of the quake and subsequent power shortages. ($1 = 84.720 Japanese Yen)

(Additional reporting by James Topham; Editing by Chris Gallagher and Edmund Klamann)

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