April 10 (Bloomberg) -- Sony Corp. and Sharp Corp. posted a combined 900 billion-yen ($11 billion) loss as the first decline in global TV shipments in six years and a stronger yen hurt overseas sales at Japan’s biggest LCD TV makers.
Sony had a record loss of 520 billion yen for the year ended March 31, more than twice what it had predicted in February, after taking a charge to write down deferred tax assets. Sharp also had a record loss of 380 billion yen, 31% more than its earlier forecast the same month.
The two companies, once symbols of Japan’s dominance in electronics, have been hammered by Apple Inc. and Samsung Electronics Co., a currency that reached a postwar high and prompted government intervention, and the aftermath of last year’s quake and Thai floods. Sony’s new President, Kazuo Hirai, may have to raise equity and cut jobs while Sharp has turned to Taiwan’s Foxconn Technology Group for a $1.6 billion infusion.
“The situation is critical and we will carry out drastic reform. Nothing is sacred,” Sony Chief Financial Officer Masaru Kato said today in Tokyo. “Turning around our TV business is a top priority.”
Sony’s shares in Germany plunged as much as 9.8 percent, the most in more than three years. Sharp’s shares fell 7.9% in Frankfurt.
Sony took a 300 billion-yen charge to write down the value of deferred tax assets as the company no longer expects to be as profitable as it had once forecast. The company may raise financing with equity, according to Kato. It has not made any specific plans to do so, he said.
“Given the tax charges, Sony’s revival and growth plans in the U.S. don’t seem to be working out,” said Satoshi Yuzaki, a general manager at Takagi Securities in Tokyo. “The market is very skeptical about the outlook for the company over the next three to five years.”
The yen’s 7.3% surge against the dollar and 11% gain against the euro in 2011 damped the repatriated value of Japanese companies’ overseas sales. Sony earned 70% of its revenue outside Japan and Sharp 47 percent.
Manufacturers have been forced to both relocate production outside of Japan and to press their suppliers for cost cuts. Interventions by Japan’s finance ministry and the Bank of Japan helped bring the currency down from October’s postwar high against the dollar.
The loss underscores the challenge for Hirai, 51, in turning around the company that set the trend in electronics during the 1980s with products like the Walkman music player. Hirai, who succeeded Howard Stringer this month, has said he will close down less-competitive businesses and cut costs to revive Sony. The company predicted operating profit of 180 billion yen for the fiscal year that began this month.
The company will cut jobs at its television unit, according to a person familiar with the situation. Sony may eliminate as many as 10,000 positions, according to the Nikkei newspaper. Sony will give a briefing on its turnaround plan on April 12, Kato said, declining to elaborate on the number of job cuts.
Sony’s loss is the worst since the company was founded, according to Mami Imada, a spokeswoman. Including today’s announcement of the 520 billion-yen loss, Sony lost a combined 919.32 billion yen in the past four years, according to data compiled by Bloomberg.
TV Shipments Fall
Global TV shipments last year fell for the first time in six years because of excessive inventory in the U.S. and Europe, and the end of Japanese government subsidies for purchases, according to DisplaySearch, part of NPD Group. Shipments fell 0.3% to 247.7 million units, the researcher said.
Samsung and South Korean competitor LG Electronics Inc. both increased their share of the global flat panel TV market in the fourth quarter while Sony, Panasonic Corp. and Sharp all posted a decline, according to DisplaySearch.
Suwon, South Korea-based Samsung last week reported a record first-quarter operating profit of 5.8 trillion won ($5.1 billion) on gains from selling phones and TVs.
“It’s only been two months since Sony cut forecasts last time,” said Nobuo Kurahashi, an analyst at Mizuho Financial Group Inc. in Tokyo “Given the general trend that orders and sales improved this past quarter, it’s unclear what could have changed so dramatically. Overall, the impression of today’s announcement is very bad.”
Hirai is scheduled to outline his turnaround plan on April 12. Sony, worth more than $125 billion in 2000, is now valued at $20 billion, compared with $591 billion for Cupertino, California-based Apple and $170 billion for Samsung.
The new CEO, who’s been credited with making the PlayStation game business profitable, is bringing in a new team and has put himself in charge of Sony’s TV business, which is forecast to lose money for an eighth consecutive year.
Hirai has already taken action in an effort to boost the TV business. Last year, Sony exited a panel-making venture with Samsung, saying the sale of that stake to the South Korean company will save about 50 billion yen in costs for Sony’s TV operation.
Sharp also posted the worst loss since the company was founded a century ago. The company has cut production of TV panels at its two biggest LCD plants as demand has failed to meet supply. The company’s so-called 10th-generation factory in Sakai, has a production capacity of 72,000 panels a month, while the eighth-generation LCD plant in Kameyama, Mie, is capable of making 100,000 panels.
“Our previous forecast was too optimistic,” Tetsuo Onishi, an executive managing officer said in a press conference in Osaka. “Sales are still bad.”
Last month, the company turned to Foxconn for help. The Foxconn group, including Taipei-listed flagship Hon Hai Precision Industry Co., will buy 9.9% of Sharp for 66.9 billion yen in a new-share sale. Foxconn Chairman Gou and related investment companies will buy 46.5% of Sharp Display Products Corp., a venture with Sony Corp., for 66 billion yen.
The deal, the largest Japanese investment by a Taiwanese buyer, includes an agreement to purchase as much as 50% of Sharp Display’s LCD panels.
Standard & Poor’s cut Sony’s credit rating one level in February to BBB+, S&P’s third-lowest investment grade, because of falling prices, waning demand and tougher competition. The announcement followed downgrades by Moody’s and Fitch Ratings, which cited difficulty in turning around the unprofitable TV business.
The cost of insuring Sony’s debt against default rose 9 basis points to 199 basis points as of 5:16 p.m. in Tokyo, according to data provider CMA. That’s the highest level since March 23, CMA prices in Tokyo show.