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Despite Abenomics Japan's Sharp Post Biggest Loss In 100 Years

Tyler Durden's picture




 

As reported earlier, at least one prominent hedge fund manager, Dan Loeb, is very bullish on Sony (or at least has played his cards well enough to buy the stock 50% lower and is using today's ramp to offload to unwitting momentum chasers as he did with Herbalife). Whether he is merely using the opportunity to earn some activism brownie points on the background of the overall levitation of the Japanese stock market, or is genuinely convinced there is upside for Sony remains to be seen. However, anyone who thinks that Japanese corporates have no place to go but up, is kindly urged to take a look at one-time Japanese electronics titan Sharp, which posted a whopping loss of $5.36 billion, the biggest loss in the company's 100 year history.

To Abe's surprise, the plunge in the Yen was not nearly enough to offset such things as a collapse in quality, innovation, and overall demand for one's products. The only question is whether this will also be the case for other companies which have now lost all innovation and "coolness" leadership to Korean competitors such as Samsung and LG. In other words, will price competitiveness be sufficient to offset everything else going south?

As for Sharp, the company does what all companies do in a case when they can't boost revenue even when the central bank has made all their products relatively cheaper by 20%: blame management and the Chairman. From the WSJ:

After posting an annual net loss of ¥545 billion ($5.4 billion), the biggest in its 100-year history, Sharp Corp. said it plans to replace both its president and chairman after just one year in an unusually public rebuke of former management that underscores the depth of the struggling electronics maker's problems.

 

Sharp said Tuesday that Executive Vice President Kozo Takahashi, 58, will replace current President Takashi Okuda, who led the company during a tumultuous year in which it scrambled to secure capital and warned about its future.

 

Mr. Okuda will become a chairman without representative rights, replacing Mikio Katayama, a former president who oversaw Sharp's aggressive—but ultimately failed—expansion of its liquid-crystal-display TV-panel business. The changes will occur after Sharp's shareholders meeting June 25.

What precipitated Sharp's epic collapse? The same factors that have led to the general collapse of the entire Japanese export industry: letting South Korea outgun it in every area:

After years of record profit that catapulted it to the top of Japan's electronics sector, Sharp spent billions of dollars to build a state-of-the-art LCD plant in Japan. However, when demand for flat-screen televisions slowed in the wake of the financial crisis and the yen rose sharply—hurting the competitiveness of its exports—Sharp's losses ballooned.

Like its Japanese peers, Sharp also failed to match the operational speed or marketing might of Samsung Electronics Co. Sharp's televisions dominated in the domestic market, but it struggled to build the same type of brand appeal overseas. When the Japanese government eliminated subsidies encouraging domestic consumers to switch to new LCD models, it worsened Sharp's problems.

But what is more disturbing than boosting the top line, even with the BOJ's unprecedented assistance, is the company's balance sheet.

Sharp's financial situation remains worrisome. As of the end of March, it had nearly ¥2 trillion in liabilities, 10 times the amount of cash and cash equivalents on hand. The company's equity ratio, a measure of financial stability, is 6%. A ratio below 10% is considered dire. Crippled by two straight years of record losses, Sharp has been forced to turn to rivals Hon Hai Precision Industry Co. Ltd. and Samsung as well as chip maker Qualcomm Inc. for equity investments to shore up its finances. It is facing a ¥200 billion convertible bond redemption in September and an additional ¥130 billion in bond redemptions in 2014.

And the liquidity is just going from bad to worse:

Sharp said it exercised an additional credit facility of up to ¥150 billion from its main lenders, Mizuho Financial Group Inc. and Bank of Tokyo Mitsubishi UFJ. This additional borrowing is on top of a ¥360 billion credit line extended by the banks.

However, all of the above is just "reality" - and who cares about that in the New Normal. After all 4 years of constantly disappointing "reality" have merely pushed the G-0 central banks to ramp up their reflation efforts to unprecedented levels. And it is not reality that matters, but models - remember to an economist it is never a (DSGE) model that incorrect, it is reality that is wrong. So time to do more of the same, and in the meantime, boost optimism and hopium. That is the only thing the centrally-planned nomenkaltura has. Same with Sharp.

For the current year to March 2014, Sharp said it plans to return to the black with a net profit of ¥5 billion, an operating profit of ¥80 billion on revenue of ¥2.7 trillion.

And if it doesn't? Don't worry. It will just project profit for 2015.... Then for 2016... Then for 2017... And so on.

 

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Tue, 05/14/2013 - 10:12 | 3560266 LawsofPhysics
LawsofPhysics's picture

Japan is America's whipping boy.  They will be asked to adopt the dollar and become the 51st state in 3...2...1...

 

So many paper fucking promises, so little assets and collateral of real value...

Gee look, everything, including treasuries are getting bought today < shocker >.

Tue, 05/14/2013 - 10:26 | 3560332 Spider
Spider's picture

So wait - QE doesnt make a company more efficient?  WTF?

Tue, 05/14/2013 - 10:13 | 3560272 Cursive
Cursive's picture

So Sharp's P/E is the same as AMZN?

Tue, 05/14/2013 - 10:15 | 3560279 slaughterer
slaughterer's picture

Bearish news, Sharp losses, do not matter: ES 1650 today, like I said.   This rally has another 5% to go.  

Tue, 05/14/2013 - 10:18 | 3560294 LawsofPhysics
LawsofPhysics's picture

"This rally has another 5% to go." - Shit, CBs can always add another zero to their accounts. Stop being such a pessimist < sarc off >  Not my junk, I bought the dip.

Tue, 05/14/2013 - 10:18 | 3560299 EscapeKey
EscapeKey's picture

Every day, it has "another 5% to go".

Sort of like "Real Computer AI" is always 20 years away.

Tue, 05/14/2013 - 11:04 | 3560534 King_of_simpletons
King_of_simpletons's picture

Ditto for "Early signs of recovery" since 2008

Tue, 05/14/2013 - 10:25 | 3560326 Bearwagon
Bearwagon's picture

Until it hasn't.

Tue, 05/14/2013 - 10:16 | 3560285 Seasmoke
Seasmoke's picture

Dull

Tue, 05/14/2013 - 10:17 | 3560292 azzhatter
azzhatter's picture

Sharp used to make a damn fine TV back when I bought a TV

Tue, 05/14/2013 - 10:36 | 3560378 Jumbotron
Jumbotron's picture

Back in the late 80's I sold consumer electronics in a now defunct chain (ironically enough, was driven out by Circuit City which now itself is dead).  Sharp's CRT's incorporated an inline electron gun similar to Sony's Trinitron inline gun which Sharp called Linytron.

I saw MUCH less returns and complaints about those Sharp sets than Sony's and I remember this one beauty by Sharp that was in all black lacquer finish with little swing out doors on the sides.  When I investigated further the doors enclosed the speakers on the sides, so if you had to install your TV in a tight space the sound from the side firing speakers could be directed out and forward.  If you didn't need the doors then you could take them off and have a wider spatial sound field for a better stereo effect.

Basically for half the price you could get a better picture with the Sharp and longer life span than the Sony's.  They were a GREAT value.  Shame about Sharp now.  Their Quattron LCD's are a thing to behold....it really is an OH MY !!!  picture.

Tue, 05/14/2013 - 10:50 | 3560468 0b1knob
0b1knob's picture

Was that chain Federated?   I remember them.    The only place that sold software for the state of the art VIC 20.

Tue, 05/14/2013 - 12:18 | 3560885 Jumbotron
Jumbotron's picture

No, it was called Video Concepts.  They were at that time a division of Tandy (Radio Shack).  They were primarily mall based.  They were pretty cool for the day since they had several "living rooms" inside the store with couches and end tables and such...with some of the higher end product setup just like in your home....(or at least a home you were dreaming of).

One of my funniest (and most back breaking) memories was selling a 60" Mitsubishi Rear Projection unit (massive I tell you), to a gentleman I had been working on for a couple of weeks.  I built up a good bit of trust with him and even accepted his request that I come out to his place to help set it up when it was delivered, even though it was my only day off.  Well....I drove out with the delivery guys about 50 miles away and into some deep Mississippi backwoods until we got to this run down mobile home in the middle of a field.  We had to completely take out his french doors to get this beast in, then move it down the hall to his bedroom, where we had to remove the door and the facings, completely move out his bed and his dresser, then set up the TV, then move his bed back in (which required disassembly and reassembly), move the dresser to another room, put the door facings and the door back on before we were through.  Quite literally this guy could reach out with his big toe from the foot of the bed and turn this behemoth on.

$4,000 dollars plus a 3 year warranty, just to be able to watch a 60" Rear Projection from the foot of his bed....with his big toe for a controller if he happened to lose the remote.

Holy Shit.

But...it was worth it.  He cooked us up some BBQ and beer and we took off the rest of the afternoon.

Good times.

Tue, 05/14/2013 - 10:18 | 3560295 EscapeKey
EscapeKey's picture

Remember, the only bubble is in Gold. That the Nikkei has risen 67% over the past 6 months is entirely sustainable... wait a sec, need to dig up a Bernanke quote on the housing bubble... oh yeah, here we are "largely reflect strong economic fundamentals," ...  "a moderate cooling in the Nikkei, should one occur, would not be inconsistent with the economy continuing to grow at or near its potential next year." ...

Tue, 05/14/2013 - 10:19 | 3560301 krispkritter
krispkritter's picture

Ouch, that's gonna leave a market, er, mark...

Tue, 05/14/2013 - 10:22 | 3560312 Jumbotron
Tue, 05/14/2013 - 10:22 | 3560313 dobermangang
dobermangang's picture

Samsung and LG are putting a hurt on the Japanese electronic companies.

Tue, 05/14/2013 - 10:45 | 3560443 old naughty
old naughty's picture

Until they aren't...

Tue, 05/14/2013 - 10:24 | 3560320 slaughterer
slaughterer's picture

Tepper Rally 3.0.   KIng Kong balls to the Multi-Trilion Dollar Wall.   Algos climbing up every chart racing through shorts and destroying all hedges.  

Tue, 05/14/2013 - 10:26 | 3560335 Going Loco
Going Loco's picture

Perhaps the BoJ will buy corporate bonds to keep companies like this afloat. It's as good a use for the "money" as anything else. So long as the cost of interest is negligible and the bonds can be rolled it doesn't matter whether the company makes profits or not. Big unprofitable companies and governments have much in common.

Tue, 05/14/2013 - 10:29 | 3560348 Smegley Wanxalot
Smegley Wanxalot's picture

"From SHARP minds come SHARP products"

I guess they dont have too many sharp minds there anymore.

Tue, 05/14/2013 - 15:16 | 3561795 Jumbotron
Jumbotron's picture

Only their upper management.....their techs know their shit.  Hell....most of your 2nd tier manufacturers....Vizio (they may be considered 1st tier at this point), Olevia (now defunct...I sold these at Office Depot so I know what panels were in their frames) and such, use Sharp panels in some of their models...paticularly their higher end ones.  It takes a little investigation, but you can find out which ones.....(Funai has Philips panels which are actually made now by LG, RCA uses TCL (China) which has a partnership with Philips which of course partners with LG, Zenith (LG)...and most famously....Sony...which uses Samsung panels with Sony components.

It's so fucking incestrous now it's hard to know what you are buying without a program.  But a little investigation can save you a lot of money and still get a really good panel.  But as always...there's more to it than just the panel.  Tie that panel up with shit components and electronics and you still get shit.

Tue, 05/14/2013 - 10:30 | 3560351 CheapBastard
CheapBastard's picture

Sharp is not GM.....don't look for a Bailout.

Tue, 05/14/2013 - 12:41 | 3560994 Vlad Tepid
Vlad Tepid's picture

Trillions of yen in QE is not a bailout?

Tue, 05/14/2013 - 10:50 | 3560477 Widowmaker
Widowmaker's picture

SNE to 47 and change.

You can thank Widowmaker (and the release of the PS4) later.

Easy money.

Tue, 05/14/2013 - 11:13 | 3560570 They trynna cat...
They trynna catch me ridin dirty's picture

Japan has totally fallen off with respect to the flatscreen market. This is what happens when you allow yourself to be taken in by shyster Korean companies and hand over your technology like idiots.

Tue, 05/14/2013 - 11:21 | 3560588 Floodmaster
Floodmaster's picture

Xenophobic Japan is dying,by 2030, there will be two workers for every retired person.

Tue, 05/14/2013 - 11:48 | 3560728 Lebensphilosoph
Lebensphilosoph's picture

And the alternative is to flood the place with foreigners in order to replace those of Japanese descent and save 'Japan', right? Well then, would you tell us, oh genius, what exactly 'Japan' is supposed to be if not the nation of Japanese people, and how beginning a program of de facto genocide is goign to save 'Japan'? Or are you just a statist?

Tue, 05/14/2013 - 12:13 | 3560850 Floodmaster
Floodmaster's picture

i just expose a fact... Territorial behavior come from your reptilian brain,don't be too emotional.

Tue, 05/14/2013 - 12:35 | 3560962 They trynna cat...
They trynna catch me ridin dirty's picture

The urge to eat, drink and procreate also comes from the reptilian part of the brain. It's part of that funny thing called "survival."

Tue, 05/14/2013 - 14:05 | 3561407 Floodmaster
Floodmaster's picture

The urge to eat, drink and procreate is physical. We should send all right-wing nationalists on the same island. You will hate your japanese counterpart very fast, Hell on earth ...

Tue, 05/14/2013 - 14:15 | 3561529 They trynna cat...
They trynna catch me ridin dirty's picture

I will gladly live on an island with the Japanese if you and other deluded Marxist utopianists like you will agree to live on another island with all of your beloved third worlders.

Wanna bet who will be better off?

Tue, 05/14/2013 - 11:49 | 3560736 They trynna cat...
They trynna catch me ridin dirty's picture

Good point. Clearly "xenophobic" Japan should open its borders to hordes of third world immigrants. Because that policy has worked out so wonderfully for Europe and America.

Tue, 05/14/2013 - 12:44 | 3561011 Vlad Tepid
Vlad Tepid's picture

Japan is the ONLY industrialized country not to do this.  I hope their experiment (in common sense) pays off for them.

Tue, 05/14/2013 - 12:49 | 3561044 They trynna cat...
They trynna catch me ridin dirty's picture

I have a bad feeling that all these years of the NY Times and other global media cackling like hyenas for Japan to commit monetary harakiri in order to 'fix' their deflation problem have been aimed at just that: destroying the Japanese economy so as to then pressure them to open their borders to the third world.

I shudder at the thought of what atrocities mobs of African and Muslim immigrant males would visit upon the noble and famously gentle Japanese female.

Tue, 05/14/2013 - 12:55 | 3561065 Vlad Tepid
Vlad Tepid's picture

As a mukoyoshi and lover of all (most?) things Japanese, I can tell you that as sick and obsequious as LDP leadership is to Anglo-American military and banking interests are, they will NEVER allow the mass immigration we've seen elsewhere.  Thank God for that.  When the economy goes seriously south, the Japanese tend to circle the wagons and ATTACK foreigners.  I am very confident that there will never be a Japanese "Malmo." 

Tue, 05/14/2013 - 13:20 | 3561192 They trynna cat...
They trynna catch me ridin dirty's picture

Let us hope so friend. Many would have said the same about Europe fifty years ago.

Tue, 05/14/2013 - 11:17 | 3560590 e-recep
e-recep's picture

major japanese electronics companies are selling company properties to raise cash and are giving up entire product lines to stop losses. i remember when sony bought that at&t skycraper in nyc, japan was looking unstoppable back then.

Tue, 05/14/2013 - 12:10 | 3560846 bagehot99
bagehot99's picture

Once all the thrid world immigrants are elsewhere we can all move to Africa and start a libertarian paradise, but with added lions!!

Tue, 05/14/2013 - 12:19 | 3560888 Jumbotron
Jumbotron's picture

LOL !!   Made me snort some coffee !!

Tue, 05/14/2013 - 12:59 | 3561091 PontifexMaximus
PontifexMaximus's picture

Who cares how big the loss is, the company is still there. Money for free.

Tue, 05/14/2013 - 13:31 | 3561252 Jeepers Creepers
Jeepers Creepers's picture

It's a shame Japan's Central bankers are destroying what was once a great nation.  I've always admired the Japanese, both the people and their products. 

It would be a shame to see the Japanese electronic companies go, but I think it's already too late.  When you bought a Sony or Sharp back in the day, quality was never compromised and people were willing to pay for that quality.  Now many of their products seem like whored out trademarks stamped on Chinese crap at Walmart.  And yes Samsung is eating their lunch, but I've had TERRIBLE luck with Samsung products, from phones to printers, I have a hard time buying anything with a Samsung label on it, they seem to end up in a dumpster in no time.  The Koreans don't seem to have the zest for quality the Japanese do, I guess they figured out early we're a disposable nation.

Tue, 05/14/2013 - 13:43 | 3561334 They trynna cat...
They trynna catch me ridin dirty's picture

Samsung, LG, Hyundai, all junk. Avoid if possible.

Tue, 05/14/2013 - 14:27 | 3561592 world_debt_slave
world_debt_slave's picture

green shoots sprouting again

 

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