Sharp to seek Samsung edge for survival as Apple sales lose steam

Mon May 13, 2013 5:00pm EDT

* Sharp to unveil 3-year revival plan on Tuesday, 0600 GMT

* Will aim to boost supply to Samsung as Apple's growth slows -sources

* Sharp to post 500 billion yen net loss for year ended on March 31 -sources

* Sharp to aim for return to 150 bln yen op profit in 2015/16 -sources

By Reiji Murai

TOKYO, May 14 (Reuters) - Japanese display maker Sharp Corp , a supplier to Apple Inc, will aim to boost sales to the iPhone maker's chief rival Samsung Electronics Co under a three-year rehabilitation roadmap to secure its survival.

The business plan, due for release on Tuesday, will lean further on banks that last year saved it from failure, as a 200 billion yen ($2 billion) convertible bond will fall due in September, three sources familiar with the plan told Reuters late last week.

Sharp will also release full-year earnings figures, including forecasts for the year to next March 31 when operating profit is expected to reach 52.9 billion yen, according to the average estimate of 13 analysts surveyed by Thomson Reuters I/B/E/S.

The company's plan will target annual operating profit of 150 billion yen by the year to March 2016, helped by expanded screen shipments to its Korean partner, the sources said. Sharp posted annual operating profit in the 100 billion to 200 billion yen range throughout the five years to March 2008, before its TV and display businesses were battered by overcapacity, a strong yen, and stiff competition from Korean and Taiwanese rivals.

Sharp was rescued last October by 360 billion yen in emergency loans from Mizuho Financial Group, Mitsubishi Financial Group and other lenders. To secure the bailout, it had to mortgage offices and factories in Japan, including one that makes screens for Apple's iPad and its latest iPhone.

The company also agreed to trim its workforce by 10,000 people and seek buyers for overseas assets including TV assembly plants in China, Malaysia and Mexico.

Sharp will borrow a further 150 billion yen this year from its banks to help meet its near-term debt obligations, and will give the lenders a number of senior management positions, the sources said on condition that they not be identified.

SOFTENING GROWTH

A key challenge for Sharp's recovery, however, is keeping its factories busy enough to earn profits that will satisfy its creditors despite slowing growth in its business making screens for Apple's iPads and iPhones.

Analysts project annual profit growth at Apple to average less than 5 percent over the next decade, compared with an average of 60 percent over the past five years.

In January, Sharp had to curtail production of 9.7-inch iPad screens, hurting output levels and threatening its recovery in profitability. The Japanese company is preparing to begin large-scale production next month of screens for Apple's next iPhone model, the sources said.

Sharp's earnings for the year ended on March 31 are expected to include a worse-than-forecast 500 billion yen net loss, in part because it had to write off panel plant assets after lower-than-anticipated production levels left it with excess capacity, sources familiar with the situation told Reuters early this month.

In a March agreement with Samsung Electronics that provided cash-strapped Sharp 10.4 billion yen in capital in return for a 3 percent stake, Japan's leading liquid crystal display fabricator also promised to supply small display screens to the world's biggest maker of mobile phones.

An earlier plan for Hon Hai Precision Industry, a Taiwanese company that builds many of Apple's gadgets, to buy 9.9 percent of Sharp unravelled as the Japanese company balked at relinquishing any managerial control to its prospective partner.

Although Hon Hai and Sharp have said they remain in contact, cooperation for now is limited to their shared ownership of the world's most advanced LCD plant in Sakai, western Japan, and a plan to jointly sell smartphones in China.

Sharp in December also sought help from mobile chipmaker Qualcomm Inc, agreeing to sell an equity stake for $120 million. The two companies plan to develop new screens based on Sharp's power-saving IGZO panel technology.

Sharp's shares have staged a turnaround since sinking to their lowest in more than three decades last October while it struggled with debt and sought a bailout.

Since mid-November, its share price has more than tripled, compared with a 70 percent rise in the benchmark Nikkei average . It surged 12.4 percent on Monday to close at 506 yen, its highest close in more than a year.

The company will release its latest earnings results and forecasts for the current business year at 3 p.m. (0600 GMT). Its president, Takashi Okuda, will hold a news briefing at 0800 GMT to present the three-year business plan.