Japan's Sharp, a major supplier of LCD displays to Apple and other manufacturers, has warned that it may not survive if it can't turn around its business, an admission that caught few off guard.
The Osaka-based manufacture said there is "material doubt" about its ability to continue operating in its earnings report filed Thursday. Sharp added, however, that it still believes it can cut costs and secure enough credit to survive. Its IGZO technology for mobile displays is likely to be a key element of its business strategy.
Companies with credit trouble must warn about possible concerns over their survival as part of their disclosure requirements.
"A year ago people would have been pretty surprised, but Sharp's situation is pretty well-known these days," said Keita Wakabayashi, an analyst at Mito Securities.
Sharp is in the midst of a restructuring plan in which it has reduced headcount, slashed employee salaries and mortgaged its buildings and factories.
The company now targets a net loss of ¥450 billion (US$5.6 billion) for the year, up from the ¥250 billion it forecast previously, due mainly to the restructuring. The company, whose stock has been downgraded to junk status by ratings agencies, continues to seek investments from outside companies, with media reports in Japan linking it to companies including Apple and Intel.
"We are continuing our negotiations with Hon Hai," said Sharp President Takashi Okuda, who spoke to reporters after the company's earnings release on Thursday.
Sharp and the Foxconn parent agreed to a deal earlier this year that would have involved a major investment in Sharp in exchange for an allotment of its shares, but negotiations have dragged on as its stock price plunged in recent months. Sharp's position in negotiations weakens along with its financials, a situation that could lead potential partners to drag out talks.
Sharp, which is suffering from an over-aggressive bet on LCD panels for large-screen TVs, is rushing to switch over to the booming market for tablets and smartphones.
The company's turnaround plan includes a focus on its IGZO technology, which uses far less battery power than existing screens. Named after the indium gallium zinc oxide semiconductor on which it is based, the screens will be used in several upcoming Sharp devices, and the company has said it expects them to become a core product.
"It's important that they keep focusing on small and medium-sized LCD screens to survive," said Wakabayashi.
Sharp said it believes it can still pull itself back to profitability with its current round of restructuring.
"We believe these measures will be enough, as do our banks," said Sharp spokeswoman Miyuki Nakayama.