Silicon Valley and its bustling startup scene is no stranger to overnight rises and dramatic falls of companies. These companies are usually the result of one idea, one that forms the core axis around which the company lives. But what happens when a big player – a corporate giant – falls?
Sharp Corp. is a name whose familiarity is diminishing by the second. Once famed for its radical approach to technology and enormous contribution to invention, ranging from the mechanical pencil to radio sets, there is no doubt anymore that Sharp is a dying entity.
After posting the worst annual loss in its 100-year history, Sharp Corp. replaced its president and chairman (after a short term), as a last resort to hang on to whatever it can. The data and the numbers point to a not-so-startling assumption: Sharp is under a pile of infertile soil already, choking to death.
According to Ifre.com earlier last year, “Sharp owes an asphyxiating [$31.8 billion] to banks, bondholders and CB holders.”
Those kinds of numbers, while dire, don’t tell the whole story. Not all areas of Sharp’s business are looking bleak. Their small and medium sized LCD sales are up significantly. The biggest holdback of Sharp, which is leading to significant operating loss, is the company restructuring. This is fueled by large debt owed to banks, creditors, etc. This is the biggest, and most dangerous, problem for Sharp.
In order to foretell whether or not the company has any sort of future ahead, it’s important to get a clearer understanding what was, and is, wrong with Sharp. The best way is to look at the numbers, which offer hints as to how the company’s fortunes have fallen so much – and if they can ever recover.
1. Diminishing Demand for LCD TVs
The LCD variety of flat screen TVs is the most popular one. That said, the demand for this TV technology has been waning. Shipments of LCD units declined for the first time ever, dropping 8% in the second quarter, according to an NPD DisplaySearch report. Once, Sharp dominated the industry with a 22 percent market share in LCD TVs, but recently the company has seen its share of the industry plunge to 5 percent. Since TVs aren’t replaced as often as smartphones (a market that Sharp hasn’t considered entering), this isn’t due to change any time soon.
2. Unstable Yen Rates
One of the major problems faced by Japanese markets is that the Yen has been getting stronger. This situation isn’t good in the present world of the global economy, where Japan is hugely dependent on other countries and relies on international trade. This works against Sharp, as international orders are affected by the gradual but consistent fluctuation in the value of the Japanese currency.
In short, the fluctuations make exported goods more expensive to foreigners, and thus the strength of the currency decreases sales. Out of the company’s control, but no less a factor in its difficulties.
3. Incompetence in Global Markets
There was a time when a Sharp, a Panasonic, or a Sony TV, for example, could attract a price premium over a Korean product, but that’s no longer the case. While Japanese electronics makers have traditionally been thought of as industry giants, there are too many of them, diluting their individual strength.
Japanese products were once known for their quality, but now the ideologies and concepts that buyers adopt have changed. Companies like Apple, and even GM, known for zero compromise on quality, produce their products in China. Country of assembly and manufacture is no longer a deal-breaker in the consumer market.
Samsung began driving down prices, forcing Sharp to keep pace. Prices for 40-inch LCD panels fell from about $2,700 in the beginning of 2004 to $1,300 in 2005 and kept dropping until they reached well below $250 at the start of this year, yet facing a drop in demand owing to consumers preferring LED 3D television sets over their processors.
Samsung steadily gained market share, moving to 29 percent in 2012 from 10 per- cent in 2004. Sharp simply hasn’t been able to withstand the stiff competition put forward by its rivals.
4. Failure to Innovate
“Japanese companies innovated primarily on hardware and the device and they were fantastic at that, the problem is, the key engine of innovation in the world has shifted from hardware to software, to systems, to solutions.” – Bloomberg
A major reason for the downfall of Sharp corp. has been that they did not innovate, or did not innovate enough. They once were the leaders in TV’s. Once upon a time, Manchester United players had ‘SHARP’ emblazoned on their shirts. What led to this downfall in innovation and radical approach? The most concise answer to that comes to us from none other than the Sharp Corps President, Kozo Takahashi, who is quoted to have said, “One cause of our financial troubles lies in ‘big company disease,’ characterized by arrogance, conceit, a decline in the spirit to challenge oneself, and a lack of customer perspective”
5. Sharp Debts
Sharp owes an asphyxiating $31.8 billion to banks, bondholders and CB holders. The biggest concern for Sharp is its maturing bond this year. This means that there are still more long term liabilities for Sharp. This just adds to the burden for Sharp in the recent future, and also discourages businesses and the public from further putting their trust in Sharp, as it is doubtful that it can repay the maturing liabilities.
6. Increasing Deflation
Deflation equates, more or less, to a dip in the prices. One would think that this is good. And, in limited amounts, it can be, for consumers. But the same force hits the overall economy, as well as the businesses that employ the consumers. Continuous deflation could result in a situation called Deflationary Spiral. A Deflationary Spiral is a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. Since reductions in general price level are called deflation, a deflationary spiral is when reductions in price lead to a vicious circle, where a problem exacerbates its own cause.
The Bank of Japan kept monetary policy loose only when inflation was below zero, tightening whenever deflation ends. The environment within which Sharp nurtured itself in its early days was different from this, and was one with little or no competition from international suppliers. This has changed, and has negatively affected Sharp.
7. Low Market Capital And Market Saturation
The larger the market capital, the more stable the company is. The market capital of Sharp corp. is relatively small compared to some of its rivals, like Sony and Panasonic. Though smaller equity results in better dividends to the shareholders, there is a problem of the equity being washed out quickly during a time of crisis.
Further, Japanese electronics companies, including Sharp, have focused quite a lot on developed markets, while companies like Samsung have focused more on the emerging markets. In most of the developed markets, the demand for consumer goods has slowed, while the demand for consumer goods has increased in emerging markets. Sony, Sharp and Panasonic each got more than 70 percent of last fiscal year’s revenue from Japan, the Americas and Europe combined. Samsung got 52 percent of revenue from the Americas and Europe in 2010, while North America and Europe accounted for 35 percent of sales at LG in 2011.
8. Sharp’s Domestic Focus
Sharp Corp is in a closed environment. It doesn’t get as much direct exposure to international markets as other companies, like Samsung, which not only promotes its own finished products to international markets, but also supplies the raw materials that its rivals (read, Apple Inc.) in turn, use to manufacture their products. Sharp, on the contrary, has fallen short in competing with big companies that draw capital from abroad.
Sharp supplies LCD panels and displays to a very limited list of companies, and has almost given up on producing a radical product of its own that will captivate buyers not just locally, but also internationally.
9. Inability To Recover From Economic Depression
Every company was hard hit by the recession. Some went bankrupt, some managed to survive, and others saw opportunity and prospered. But Sharp was hit hard by the recession and was not able to recover from the fall. It restructured the business, resorting to a risk-free philosophy, which in turn led to a closing down of its more ambitious development efforts.
This made the situation even much worse for Sharp. It was struck by complicated problems that were further convoluted by the setback of being unable to take risks, and having nothing to show for itself once the dust had settled.
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