Sharp bailout plans include breaking business up, merging with Solar Frontier

It is no secret that Japanese electronics giant, Sharp Corp. has been flailing in recent times, particularly on the back of its failing LCD business, but also due to falling profits in its solar division. Indeed, despite being a domestic market leader in the latter, disappointing financial results in 2014 prompted speculation last March, although quickly refuted by the company, that it would sell off its solar arm.

Fresh speculation is now circulating that the Innovation Network Corporation of Japan (INCJ), a public-private fund, is looking to inject roughly JPY 300 billion (around US$2.49 billion) of capital into Sharp. According to the Nikkei Asian Review, which cited anonymous sources, part of INCJ’s rescue plan would see Sharp’s solar PV business integrated with thin film producer, Solar Frontier.

"Under the plan, the public-private fund would lead efforts to restructure Sharp’s solar business, such as streamlining surplus production facilities, then integrate the unit with Solar Frontier’s business," reported Nikkei on Sunday, January 31. pv magazine has contacted the parties involved for comment.

Prior to the INCJ takeover offer, Taiwan-based Foxconn Technology Group, also known as Hon Hai Precision Industry Co., made a bid to rescue Sharp with an around JNY 600 billion (around $5.1 billion) capital injection. Although more generous than INCJ’s offer, it has been widely reported it will not be accepted, as the government aims to keep Sharp in Japanese hands.

Responding to rumors about the sell-off of its LCD business and investment by INCJ, Sharp issued a statement on January 12, which read, "In order to reconstruct our management, we have been continuing negotiations with other companies regarding fundamental structural reforms of LCD panel business and such, however nothing is determined yet at this moment. Whenever any decisions are made that require disclosure, we will make immediate announcements accordingly."

However, a report in Forbes yesterday, which does not mention Solar Frontier, but analyses the takeover offers from Foxconn and INCJ, states leaks from Sharp indicate that whatever happens, the company will be "quasi-nationalized … broken up and downsized."

Many expect an announcement to be made this Thursday, February 4, when Sharp is scheduled to release its next set of financial results.

Sharp’s solar losses

At the end of last September, Sharp reported a "substantial" operating and net loss for the year ended March 31, 2015. In its Energy Solutions division, a sales decrease of 44% was recorded, based on a decline in sales of its solar cells.

To counter these losses, the company issued shares to Mizuno Bank Ltd, Bank of Tokyo-Mitsubishi UFJ Ltd and to Japan Industrial Solutions in June. (However, if the INCJ rescue plan is accepted, the banks will "surrender to the INCJ, without compensation (i.e., essentially give up and write off), some JPY 200 billion ($1.7 billion)," wrote Forbes yesterday.)

Due to more losses in the first six months ended September 30, 2015, which "threatened its ability to continue as a going concern," Sharp was further forced to unveil a new management plan. The three strategies were to: (i) restructure its business portfolio; (ii) reduce fixed costs; and (iii) reorganize and strengthen corporate/governance systems.

In 2014, Sharp’s PV unit, previously known as Solar Cells, but renamed Energy Solutions, was hit by a decrease in solar cell sales for residential use in Japan, which resulted in a hefty 97.3% drop in profit to JPY 183 million and an 18.1% decline in revenue to JPY 69 billion for the segment at the start of 2014.

The news came just after the company announced that it would pay €95 million to Enel Green Power to take over its purchase obligations from their 3Sun joint venture in Sicily. Sharp, Enel and STMicroelectronics launched the 3Sun factory to build multi-junction thin film silicon solar PV modules in 2011.

Following this, Sharp sold subsidiary Recurrent Energy to Canadian Solar for US$265 million. At the time, Ash Sharma, senior director of solar research at IHS, told pv magazine the sale was not a reflection on the market.

"Our view is that the sale of Recurrent is probably more of a reflection of Sharp’s difficult financial position (as a business overall) in the past few years rather than it viewing solar negatively. Generating cash in the short-term appeared to be a driving factor, despite the longer-term benefits it could have drawn from the Recurrent business," he said.

Rumors then mounted in March 2015 that Sharp was looking to raise much-needed cash through the partial or complete sale of its solar business. While its brand remained strong and share of the Japanese PV market dominant, experts said Sharp struggled with profitability from its solar segment on the back of the weak yen.

However, at the end of that month, Kazushi Mukai, head of Sharp’s energy unit, told reporters during a tour of the company’s solar cell factory in Sakai, Japan, that the company would not sell its loss-making solar business. Instead, the company, which at that time forecast a loss of JNY 5 billion (US$42 million) for the unit in its fiscal year ending March 31, planned to return to profit in its next fiscal year.