Kyodo News reported after the Sept. 20 close that  Sharp Corporation (TYO:6753) is considering a restructuring plan targeting ¥2.8 tn in sales and a ¥30 bn net profit in FY3/14. The report said Sharp submitted the plan early this week to financial institutions, which are analyzing its feasibility and will decide whether to participate in a total of ¥300 bn in additional financing for Sharp Corporation (TYO:6753). It is likely that  Sharp Corporation (TYO:6753) will ask for a new line of financial support in late September based on the plan and make a formal announcement after that.

Sharp Corporation

Now we have more news on Sharp.

Kyodo News Service reported on 20 September that Sharp plans to present lender banks with a restructuring plan as soon as next week targeting FY3/14 consolidated NP of around JPY30bn. The 21 September Mainichi Shimbun meanwhile reported that the company is in talks with Intel Corporation (NASDAQ:INTC) over a capital stake of more than JPY30bn, with an agreement possible by mid-October. Sharp has denied any alliance with Intel Corporation (NASDAQ:INTC), but analysts think the reports indicate that assistance from banks is not predicated on Hon Hai Precision Industry Co., Ltd. (TPE:2317)  taking a stake. Analysts accordingly look for the stock market to shift its focus to Sharp’s business performance and the details of its restructuring plan. Although there is no official announcement from the company, assuming Kyodo News Service is also correct in contending that Sharp will leave FY3/13 guidance essentially unchanged (via JPY14bn in additional personnel-cost reductions), some analysts think the shares could react favorably over the near term. However, analysts also see continued uncertainty on IGZO sales—the key to Sharp’s revival.

Main points from Kyodo News Service:

  • Sharp Corporation (TYO:6753) plans to present lender banks with a restructuring plan targeting around JPY30bn in FY3/14 consolidated NP. The target is to be reached by cutting staff and salaries/bonuses.
  • Sharp Corporation (TYO:6753) expects sales to advance to JPY2.8trn in FY3/14 on growth in sales of small and midsized LCDs.
  • FY3/13 guidance will be essentially maintained (net loss of JPY250bn on sales of JPY2.5trn). This is premised on a 1H shortfall being offset by fixed-cost cuts (JPY14bn) in 2H.

Main points from Mainichi Shimbun:

  • Sharp Corporation (TYO:6753) is in talks with Intel Corporation (NASDAQ:INTC) over a capital stake of over JPY30bn, with an agreement possible by mid-October.
  • Intel Corporation (NASDAQ:INTC) views Sharp as a potential partner for an Intel-powered smartphone and other products.
  • Sharp plans to continue negotiations on an alliance with Hon Hai Precision Industry Co., Ltd. (TPE:2317)

Implications
Restructuring and the alliance with Hon Hai Precision Industry Co., Ltd. (TPE:2317)  are critical, but analysts do not think Sharp will have sufficient cash flow in the near-to-medium term without restoring operations at the plant. They assume the plant will run at 50% utilization (i.e. 30-35 mn 9.7 inch LCD panels per annum) in FY3/14. So it might make sense that the September 21st report is more accurate.

In other Sharp news, Sharp was not directly affected as of Monday. However, investors are concerned about a possible impact on actual sales as stores refrain from offering Japanese products.  Anyone, who is confused about the recent tension, can consult a book on the Asian Pacific front in World War II.

(Disclosure: No position in any securities mentioned)