Measures to Reinforce Business Foundations
(1) Response to Underperforming Business
From the beginning of the period, we were concerned that the first half of fiscal 2012 was going to be difficult. Regrettably, the first quarter ended even lower than had been forecast. Sharp recognized the gravity of the situation and the need for urgent action. Financial forecasts were immediately revised and the ramifications of the situation were urgently factored into the management of Sharp’s operations.
In order to return to profitability in the second half of fiscal 2012, Sharp is working to implement fundamental improvements in three areas in particular that weigh heavily on the company: inventory, plants and equipment, and personnel.
1) Operations at the Sakai Plant
For the first quarter of this fiscal year, Sharp adopted a policy of giving highest priority to improving its financial position. Consequently, the capacity utilization rate of the Sakai Plant was reduced to around 30%. Also contributing to the worse-than-expected profit results were additional costs incurred due to the reduction of excess inventory.
However, since July 2012, Sharp has begun to receive larger orders from the Hon Hai Group, as well as from Sharp’s panel customers. The capacity utilization rate has gradually increased to around 80%. A rate of around 90% was initially projected for the second quarter of the fiscal year. Considering the reductions in inventory, however, we are now projecting a rate of around 80%. For the third quarter and beyond, taking into account the volume of orders expected to be placed by the Hon Hai Group, as well as by Sharp’s panel customers, we expect to maintain a capacity utilization rate of around 80% to 90%.
Between the end of March and the end of June in 2012, we reduced the inventory of large-size LCDs by 40.0 billion yen. Moreover, from the end of June to the end of September, we expect further inventory reductions of 20.0 billion yen.
2) Initiatives in Small- and Medium-size LCDs
For small- and medium-size LCDs, the Mie Plant and the Tenri Plant are currently operating at full capacity to cope with burgeoning demand.
The Kameyama No. 1 Plant is scheduled to begin mass production of small- and medium-size LCDs in August 2012.
Although the Kameyama No. 2 Plant began production of new panels using IGZO technology in March 2012, its capacity utilization rate was low, due to a reduction in orders from major customers and a revision of a product commercialization schedule, requested by a “design-in” business partner. The losses incurred by such low-capacity operation resulted in lower-than-projected profits for the first quarter and also affected the forecasts full-year.
However, the Windows® 8 is scheduled to be launched by the end of this year, and we have already received orders from many customers, for small- and medium-size LCDs maximizing advantages of IGZO LCDs. We expect demand for LCDs used in new monitors, Ultrabook™, and notebook PCs to expand from the second half of fiscal 2012 to fiscal 2013.
(2) Working to Achieving a Steady Earnings Recovery from Fiscal 2013 Onward
Let me explain our initiatives for a robust recovery even assuming that the severe business environment will continue. In order to achieve a turnaround from the performances in fiscal 2012 and enter into a recovery phase from next fiscal year, we will work to strengthen our management foundations. We are aiming at realizing a management structure that allows our business to stay in the black, even if annual sales were to remain at the level of fiscal 2011 and 2012. To achieve this, we will reduce fixed costs by 100.0 billion yen, by working on restructuring initiatives, including reorganization of current business groups, personnel downsizing, changes in business systems and upgrading of IT. To be specific, we will cut labor costs, depreciation and amortization, outsourcing expenses, and advertising expenses.
(3) Restructuring for New Growth
In addition to realizing robust business foundations, Sharp will be implementing four initiatives aimed at entering a new stage of growth.
1) Reorganizing business groups
Sharp intends to improve management efficiency by reorganizing its current business groups into four major business groups depending on respective characteristic of customers and business models. The purpose of this is to further enhance our efforts to deliver new essential products and to create new markets in the B2B and other fields.
The first group is the “Digital Information Appliances Group.” We will expedite the development of IGZO application products, by reorganizing and integrating the Audio-Visual Systems Group with the Communications Systems Group. In addition, Sharp will offer a new digital lifestyle that includes network links between products such as next-generation LCD TVs and tablet terminals, with the goal of becoming a business group with a greater value-adding capacity.
The second group is the “Health, Environment and Energy Solutions Group.” This group will be formed from the Health and Environmental Systems Group and the Solar Systems Group. We will work to expand our solar energy peripheral systems and equipment, including HEMS, storage batteries, and power conditioners. Further, we will set up Plasmacluster Ion and LED business groups as a new independent group, while striving to strengthen efforts in B2B business by expanding industrial applications of Plasmacluster Ion technology in warehouses and factories, and enhancing sales of LED lighting for industrial use. At the same time, we will seek to globally deploy products that incorporate Plasmacluster Ion and LED technologies. In addition, we will work to further expand overseas business, focusing on emerging markets.
The third group is the “Business Solutions Group.” As the center of our B2B business, this group will strive further to propose solutions for offices and public spaces, and to attract new customers through an enhanced sales system.
The fourth group is the “Devices Group.” By seizing business opportunities presented by growing demand for smartphones and the expected launch of Windows® 8, this group will work as rapidly as possible to develop new customers for IGZO LCDs and create new devices by integrating various unique devices.
2) Review of framework at plants/bases
Coinciding with reorganization to four business groups, we work on review of framework at plants/bases. We will transfer Administration and Headquarters functions of the Audio-Visual Systems Group currently belonging to the Tochigi Plant to a business site in Nara, and the same functions of the Solar System Group, currently belonging to the Katsuragi Plant, to the one in Sakai, Osaka, and will scale down the plants gradually.
3) Streamlining of head office
In order to make business operations more efficient through innovative changes and to expedite decision making, as of August 3, 2012, we reformed organizations in the head office which had become bloated and vertically segmentalized.
4) Personnel downsizing
Along with these initiatives mentioned above, we are proceeding with a personnel downsizing. We will reduce the number of employees by about 5,000, from the present 57,000 employees of Sharp Corporation and its consolidated subsidiaries, through mandatory retirement, off-balance-sheet arrangements and voluntary retirement, in consultation with the company labor union in order to develop a specific program, by the end of March 2013.
The current business environment represents an extremely challenging situation. Sharp will take steps to improve financial results by speeding up its management process. This will be done by implementing unprecedented restructuring measures, such as divesting certain business segments, reshuffling the organization, and reducing personnel levels.