August 13, 2007 / 7:41 AM / 12 years ago

UPDATE 1-Sanyo Elec mulls cellphone operation sale -source

(Adds analyst comments, latest share price)

TOKYO, Aug 13 (Reuters) - Sanyo Electric Co. 6764.T, which is shedding non-core assets, is considering selling its loss-making cellphone operations and is in talks with domestic mobile phone makers, a source close to the matter said.

Sharp Corp. (6753.T) and Kyocera Corp. (6971.T) are among the likely candidates for buying the unit, the source said on Monday.

Sales of Sanyo’s telephone gear business, which is mainly made up of mobile phones, came to 340.2 billion yen ($2.88 billion) in the year ended March 31, representing 15 percent of its group sales.

Sanyo is the world’s ninth-largest mobile phone maker with a 0.8 percent share in the first qarter of calendar 2007 in terms of unit sales to end-users, according to research firm Gartner.

The latest restructuring step at the Osaka-based consumer electronics maker comes after the company posted a 72 percent fall in operating profit for April-June, hit by sluggish sales of its mobile phones and higher raw materials prices.

Sanyo now expects to sell about 11 million units of mobile phones in the current business year to March 2008, down from its initial estimates of 12.5-12.6 million.

“Can Sanyo’s mobile phone business go it alone? I think it’s quite unlikely,” said Michito Kimura, analyst at research firm IDC.

“The sale of the mobile phone business may not necessarily breathe vigour into the whole of Sanyo, but it could be dangerous to keep holding the business as it is.”

He said it is difficult to assess the possible sale price for the unit.

Sanyo, which has posted net losses for the past three business years, sold its stake in leasing firm Sanyo Electric Credit Co. Ltd. 8565.OS this year and is widely believed to be in the process of selling its semiconductor operations.

Analysts have said time is ripe for realignment among 11 Japanese cellphone makers after many of them retreated from overseas markets in recent years as they failed to compete effectively with such industry giants as Nokia NOK1V.HE.

Besides Sony Corp. (6758.T), which runs a successful mobile phone joint venture with Ericsson (ERICb.ST), Japanese mobile phone suppliers include Matsushita Electric Industrial Co. Ltd. (6752.T), Toshiba Corp. (6502.T), NEC Corp. (6701.T), Fujitsu Ltd. (6702.T) and Mitsubishi Electric Corp (6503.T).

Shares in Sanyo, the world’s largest maker of rechargeable batteries, closed down 2.1 percent at 190 yen, underperforming the Tokyo stock market’s electrical machinery index .IELEC.T, which fell 0.19 percent.

($1=118.29 Yen)

((Reporting by Kentaro Hamada, writing by Kiyoshi Takenaka, editing by Hugh Lawson; Reuters Messaging: kiyoshi.takenaka.reuters.com@reuters.net; +81-3-3432-8837; kiyoshi.takenaka@reuters.com)) Keywords: SANYO MOBILE PHONE/

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