Three Japanese Icons You Must Sell
For decades, these companies represented the best quality, most innovative products on the consumer and industrial markets...but how the mighty have fallen.
A $21,500 television in today's economy makes about as much sense as Steve Ballmer's new plan to re-merchandise Microsoft (NASDAQ:MSFT) and compete with the world's number one designer, Apple, as a goods company. It'll probably be about as effective, too.
Sharp Corporation (PINK:SHCAY): While Sharp has a diverse product line, more than 60% of its product line revenue comes from TVs. But how many TVs does the world need, and how do you tell one brand from another?
Sharp's bonds imply a better-than-90% probability of default within the next five years. Several key "Hail Mary" survival negotiations have failed, including was what to have been an $8.43 billion infusion from Foxconn's Terry Gou.
Sharp posted a 376 billion yen (approximately $4.6 billion at today's exchange rate) loss in 2012, and has already posted losses in excess of $1.29 billion in the first half of 2013. To make matters worse, increasing competition in every one of its product segments has put the company in slash-and-burn mode.
The company itself has expressed material doubt about survival. In September, Bloomberg reported the company is considering cutting 10,000 jobs (18% of its workforce), and it was forced to sell overseas TV assembly plants and shutter solar panel businesses in Europe and the United States in order to secure a 210 billion yen (approximately $2.5 billion) bailout from Mizuho Financial Group and Mitsubishi UFJ Financial Group. It's seeking early outs for retirees and reducing pay for remaining workers.
Japanese experts suggest that the way ahead depends on more capital and its IGZO display technology...but who in their right mind would give it to Sharp, and on what terms?
Panasonic Corporation (NYSE:PC): And finally, there's Panasonic. Once at the vanguard of Japanese exports, the company stunned Wall Street by forecasting a $9.5 billion loss come March when its fiscal year ends. That's 30 times bigger than estimates in place at the time in early November when it stunned the financial community with the news.
I personally think the losses will be bigger, based on the rapid and near-complete failure of consumer electronics sales worldwide, and the emergence of hotly competitive, better-margined alternatives, not the least of which are mobile devices.
Fitch lowered Panasonic's credit rating to junk on November 22, and the continued operations are marginal because of increasing liquidity constraints. The company announced earlier that same month that it won't pay a dividend for the first time since 1950 because of dire business conditions.
Panasonic simply doesn't have its feet on the ground, and at this point in the product development cycle is unlikely to catch up, especially when you consider that it's shown nearly 40,000 workers the door in the past 12 months.
In closing, hold no illusions. These are all extremely opportunistic choices for very aggressive investors and traders who understand that profits can be made in two directions—up and down.
Risk control is paramount under the circumstances, as is the ability to endure the volatility associated with last gasps that inevitably come with dying companies.Editor's Note: This article was written by Keith Fitz-Gerald of Money Morning.
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