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Sharp fears for future as Japan TV makers bleed

By Tim Kelly

TOKYO (Reuters) - Struggling Japanese TV maker Sharp Corp warned it might not be able to survive on its own, as it almost doubled its full-year net loss forecast to $5.6 billion, and said it was considering alliances with other companies.

In a statement, the company said it booked massive second-quarter losses and is seeing "serious negative operating cash flow." "This raises serious doubts about (our ability) to continue as a going concern," it said, adding it was taking steps, from pay cuts and asset sales to voluntary redundancies, to generate cash flow.

Sharp has been in talks for months with Hon Hai Precision Industry Co Ltd about the Taiwan-based group becoming its biggest shareholder. Sharp said on Thursday it expected an agreement on that before a March deadline, but added it was considering other alliances as well.

"Perhaps it will not fail within this year, but I don't think Sharp has a viable business in the next 3-5 years," said Tetsuro Ii, CEO of Commons Asset Management in Tokyo. "The company hasn't got much time left and they need to cut off businesses that they can, conserve cash and ... produce something that's really competitive."

Sharp CEO Takashi Okuda told reporters: "We have lots of great technology and we want to tap that asset to revive and make money, but I can't say we are now a company with that vitality."

SONY PROFIT

Bigger Japanese rival Sony Corp, which blazed a trail in the early 1980s with its Walkman portable music players, made a small operating profit in July-September, helped by the sale of a non-core chemicals business, and kept its forecast for a full-year profit of $1.63 billion.

But the maker of Bravia TVs, Vaio laptops and PlayStation game consoles said it expects to sell fewer of its hand-held PSP and Vita consoles this year - 10 million - than it previously estimated. It also cut forecasts for sales of its TV sets - to 14.5 million - and compact digital cameras - to 16 million - but kept its PlayStation home console sales estimate at 16 million, and maintained its forecast to sell 34 million smartphones.

The grim tale from brands that led a consumer electronics boom from the 1970s came a day after Panasonic Corp said it will lose almost $10 billion this business year as it writes down goodwill and assets and prepares for more restructuring.

The maker of Viera brand TVs also skipped its dividend for the first time in more than six decades and cut its full-year TV sales forecast by more than a quarter to 9 million sets. Panasonic shares slumped by nearly a fifth on Thursday, wiping $3 billion off its market value.

By March, the three companies - all under new leadership after racking up combined losses of $20 billion last year - expect to have axed close to 60,000 jobs and are selling assets and closing facilities.

While battling weak demand and fierce competition from Apple Inc and Samsung Electronics, the Japanese brands are also up against a strong yen and bumps in China, where growth has slowed and Japanese goods have been targetted in sometimes violent protests in a dispute over ownership of islands in the East China Sea.

"Consumer needs have been changing and for too long Japanese electronics firms, like Sharp, with their size and heavy reliance on past successes, have been too slow to adapt," said Yuuki Sakurai, CEO of Fukoku Capital Management.

WHAT WILL DRIVE SONY?

Sony CEO Kazuo Hirai has pledged to rebuild the company around gaming, digital imaging and mobile devices, and nurture new businesses such as medical devices, as the TV business shrinks. In late-September, Sony agreed to pay 50 billion yen to become the biggest shareholder in Olympus Corp, a world leader in medical endoscopes.

"The areas in which Sony is continuing to focus are of course high-risk, high-return markets," said JP Morgan analyst Yoshiharu Izumi ahead of the quarterly earnings. "Although we expect (full-year) margin improvement in electronics, we think it's too early to appraise a sustained recovery."

Sony reported a small operating profit of 30.3 billion yen ($379 million) for July-September, after a loss a year ago, and kept its forecast for a 130 billion yen operating profit for the year to end-March.

"The fact that Sony managed to maintain profits shows management's strong will and commitment to continue cost cuts even while their product sales remain sluggish," said Takashi Hiroki, chief strategist at Monex Inc. "Compared to Panasonic and Sharp ... Sony's earnings should get some credit."

"But we still don't see what their major earnings driver will be in the future."

Shares in Sony, valued at less than $12 billion, have dropped by close to a fifth since end-June and the cost of insuring against debt default for five years has jumped by almost 60 percent.

SHARP CHARGE

Sharp, which makes Aquos TVs, almost doubled its forecast full-year net loss to 450 billion yen ($5.63 billion) after taking a $1.1 billion restructuring charge in July-September. At an operating level, it sees a loss of 155 billion yen. But it said it would make an operating profit in the current second half - allowing its banks to justify a $4.6 billion bailout.

Sharp, Japan's leading maker of liquid crystal displays, has secured fresh loans from banks in return for a pledge to cut jobs, sell assets and return to profit. It has mortgaged most of its offices and factories in Japan, including one that makes displays for Apple's iPhone and iPad. It kept its forecast for TV sales this year at 8 million sets.

The bank loans may prove to be just a sticking plaster rather than a salvation, said Makoto Kikuchi, CEO at Myojo Asset Management. "I don't think Sharp has a future. Even if it gets by this term, financial problems could emerge again next business year, and I don't see the banks coming to the rescue."

As it seeks survival, Sharp is further hampered by weakened finances. At end-September, the company's shareholder equity ratio fell to below 10 percent - half the rate generally considered a healthy minimum.

Sharp shares have plunged more than 75 percent so far this year, while the benchmark Nikkei average has gained more than 5 percent. Sharp fell 1.7 percent on Thursday ahead of its earnings release. Sony closed down 4 percent.

($1 = 79.9300 Japanese yen)

(Additional reporting by Reiji Murai, Hirotoshi Sugiyama, Mari Saito, James Topham and Ayai Tomisawa; Editing by Linda Sieg and Ian Geoghegan)

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