With Bet on Japan, Sharp Stumbles
By JONATHAN SOBLE

TOKYO — When flat-screen televisions began replacing boxy analog sets in the world’s living rooms more than a decade ago, few companies bet bigger on the new technology than Sharp of Japan.

The century-old manufacturer, which got its start making belt buckles and mechanical pencils before World War I, defied corporate orthodoxy by building an advanced new display factory in its homeland, while rivals outsourced to cheaper countries.

The gamble paid off — for a while. Made-in-Japan Kameyama model TVs, named for the factory, became a hit, and Sharp reaped big profits.

“We were winners then,” said Yukihiko Nakata, an engineer who worked for 33 years at Sharp.

Those days are over. Sharp is now mired in losses and its future is in doubt.

Sharp had found a rescuer in a Taiwanese company called Foxconn, which makes gadgets for Apple and others and was offering a $5.5 billion lifeline. But Sharp unexpectedly told its would-be rescuer last week that it could be liable for close to $3 billion in potential costs, according to a person with knowledge of the talks. Foxconn is still examining the sudden disclosure, and it isn’t clear whether the Taiwanese company will complete the deal.

Sharp’s plight is a story of missteps by executives who failed to anticipate major shifts in the global electronics industry. China, long the home of cheap manufacturing, has become increasingly sophisticated, making gadgets that can rival Japan’s in quality. Rivals elsewhere are challenging Japanese companies on innovation. The industry’s center of power has moved away from Japan to places like China, South Korea and Silicon Valley in the United States.

Sharp’s leaders were slow to adapt, employees and industry experts say. Unwilling to change strategy when business conditions turned against them, they doubled down on investments in increasingly unprofitable businesses, deepening the company’s financial distress.

As prices of liquid-crystal displays, or LCDs, began falling quickly in the mid-2000s, because of advances in manufacturing and a supply glut in China, Sharp scrambled to keep ahead of cheaper competitors. It developed ever-bigger TV displays and expanded into touch screens for smartphones and tablet computers. But rivals matched it more quickly than executives had anticipated, said Mr. Nakata, who left Sharp a decade ago and is now a professor at Ritsumeikan Asia Pacific University in Japan.

“First computer monitors became commoditized. Then it was TVs, and finally smartphone screens,” he said.

Sharp may be in bigger trouble that it initially acknowledged. Last Thursday, the same day Sharp’s board voted in favor of selling the company, its suitor, Foxconn, abruptly suspended its offer. Foxconn cited the “new material information” revealed at the 11th hour by Sharp. According to the person with knowledge of the situation, the information was a list of about 100 contingent liabilities — potential costs that could emerge depending on business conditions or other matters — totaling close to 350 billion yen, or $3.1 billion. Sharp declined to comment on the negotiations.

Sharp chose Foxconn over an investment fund backed by the Japanese government. The fund, Innovation Network Corporation of Japan, already owns troubled LCD assets once run by Toshiba and others, and government officials see it as a potential savior for Japan’s flat-screen industry. Still, the fund may need to take a second look at Sharp’s books to see what might be lurking inside.

Sharp was blinded by its early success in flat-screen TVs, employees and experts say.

Soon after the Kameyama factory started churning out TVs, Sharp started work on an even bigger Japanese plant, near its Osaka headquarters in the industrial suburb of Sakai. Four times as large as Kameyama, it cost more than $4 billion to build.

By 2012, three years after production began, the factory was operating well below capacity, and Sharp decided to sell part of it to Foxconn’s billionaire founder and chairman, Terry Gou. Write-offs related to its initial investment are part of the reason Sharp has lost more than $10 billion over the last half decade.

“They had enough production capacity with Kameyama, but they went ahead and built Sakai,” said Mr. Nakata, the former Sharp engineer. “That was a fundamental mistake.”

Sharp’s executives didn’t see it that way. They sought to exploit economies of scale while preserving what they saw as the company’s lead in quality and technology. “Our rivals might pursue this kind of scale, but we’ll have a cost advantage for some time,” Mikio Katayama, then Sharp’s president, said when the Sakai plant opened.

His timing was unfortunate. Much of the world was struggling after the global financial crisis . LCD prices were tumbling fast, and the yen’s exchange rate had shot up, making exporting from Japan crushingly expensive. Sharp fell into the red.

Sharp has since been through two restructurings and bailouts by its banks. About 6,000 full-time jobs have been cut through voluntary buyouts, equivalent to nearly one-quarter of its work force in Japan.

Monaliza Lastimoza came to Japan from the Philippines eight years ago to take a job at a Sharp factory in Taki, near Kameyama in central Japan. There she cut sheets of glass into palm-size rectangles for smartphone displays.

Last year, she said, she and her husband, also from the Philippines, were fired along with dozens of other foreign workers at the plant. Ms. Lastimoza was pregnant at the time and was about to go on maternity leave, she said.

“The factory seemed busy, but then suddenly they gave us a termination notice,” she said.

Sharp said the agency that provided the foreign workers in Taki should ensure that labor standards were followed in hiring or dismissing them. Sharp also declined to provide figures for the number of contractors and other irregular workers whose jobs have been eliminated.

Mr. Gou, of Foxconn, has made vague promises to protect jobs at Sharp, which employs about 20,000 people in Japan and thousands more worldwide. Foxconn also says it does not plan to break up Sharp.

The Innovation Network Corporation had different plans. In 2012, it combined LCD businesses it purchased from Toshiba, Hitachi and Sony into a new company, Japan Display. The company has struggled, and its backers hoped that adding Sharp’s production volume would make it more competitive. The network corporation was also negotiating with Toshiba to have Sharp sell Toshiba its home appliances division.

The fund offered to invest about $2.7 billion but said the real value was larger because it could use its influence with Japanese banks to secure additional financial support.

Yet the banks appear to favor Foxconn. Two members of Sharp’s board installed by the electronics company’s biggest lenders, Bank of Tokyo-Mitsubishi UFJ and Mizuho Corporate Bank, supported Foxconn’s offer.

“The banks lent too much money, and this saves them the embarrassment of writing it off,” said Atul Goyal, an analyst at Jefferies, a brokerage firm.

Should Sharp strike a new deal with the Innovative Network Corporation, that would suit the agenda of officials in Japan’s powerful ministry of industries who think its operations could be saved. But Prime Minister Shinzo Abe has been preaching the virtues of foreign investment, and using taxpayer money to bail out Sharp could be awkward.

“Sharp’s technology is not essential to Japan’s industrial structure today,” said a senior Abe administration official, who asked not to be named to discuss a private business matter. “If it was, Japanese companies would have put up money to buy it.”

夏普崩壞真相 高層錯估產業風向

「對日本的產業結構來說，夏普的技術現在已不重要了。要不然，日本企業就出資買下夏普。」─日本一位不願具名的官員

這裡不談鴻夏戀，而是談一個企業錯估全球電子業風向改變的故事和結局。

十多年前，當全世界客廳裡的映像管電視開始被平面電視取代時，夏普為發展顯示器所砸下的金額傲視同業。

這家以自動鉛筆和皮帶扣環起家的百年製造商做了一件違背企業常理的事：當其他企業均向海外找尋廉價的產地時，夏普卻將新的先進顯示器工廠蓋在故鄉土地上。

夏普的策略確實奏效了，日本製的電視開始大賣，而夏普也因此大量獲利。然而，好景不常。夏普現在正深陷虧損的泥淖，未來也仍懸而未決。

夏普的遭遇是高層估算錯誤、沒有預期全球電子業風向改變的故事。

過去均以生產成本低廉而聞名的中國開始邁向高科技化，生產品質可媲美日本競爭對手的產品，而其他國家的競爭對手則不斷挑戰日本公司的創新能力，導致這個產業的權力核心已從日本移至中國、南韓、美國矽谷等地。

夏普的員工和產業專家指出，夏普領導階層的適應能力很弱。當產業現況與他們的策略背道而馳時，他們不願改變策略，反而還加倍投資於獲利愈來愈低的事業，使公司的財務困境變得更嚴重。

當液晶顯示器（LCD）的價格在2000年代開始快速下跌時，夏普靠發展更大的電視顯示器和開發智慧手機和平板電腦的觸控式螢幕，努力維持和廉價競爭對手的差距。但曾在夏普擔任33年的工程師幸彦中田（Yukihiko Nakata）表示，對手追上夏普技術的速度卻比夏普主管預期的快。

夏普的員工和產業專家指出，夏普被早期在平面電視的成功所蒙蔽。

龜山廠開始生產電視後，夏普又斥資逾40億美元，在堺市興建規模達龜山廠四倍的工廠。

到了2012年，堺市廠的產量已出現下滑，夏普因此打算將堺市廠的一部份出售給鴻海。

幸彦中田說：「他們在龜山廠的產量是足夠的，但是他們卻繼續建造堺市廠…這是個根本上的錯誤。」

但夏普的領導階層那時卻不這麼認為，他們希望能善用規模經濟，並保持夏普在品質和技術方面的領先優勢。

然而，運氣並不是站在夏普這邊。全球各地當時仍力圖從金融危機中重振，導致LCD價格重挫，而日圓的匯率也飆升，使從日本出口的商品變得非常昂貴，夏普也因此被推入深淵、造就了之後待價而沽的局面。

一位不願具名的日本政府官員說：「對日本的產業結構來說，夏普的技術現在已經不重要了…要不然日本的企業就會出資買下夏普。」

原文參照：
http://www.nytimes.com/2016/03/03/business/dealbook/with-bet-on-japan-sharp-stumbles.html

2016-03-26．經濟日報．S06．產業特蒐．編譯 謝汶均