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Sharp may boost OEM efforts

Not so sharp * Sharp said fiscal first-half group net income will fall 16 percent from a year earlier. * The company is not likely to meet its full-year LCD sales target of ?440 billion because of falling prices. * The company said it will meet sales targets for mobile phones and LCD television sets in the year ending March 31 next year.

Sharp Corp said it may manufacture mobile phones and digital cameras for other companies to increase revenue as the Japanese consumer-electronics maker's component sales decline.

Osaka-based Sharp, which already makes air conditioners and microwave ovens for other companies, may produce more for electronics-makers seeking to outsource production in addition to making products under its own brand, President Katsuhiko Machida said in an interview.

Sharp is trying to increase consumer electronics sales as revenue from electronic parts, such as LCDs and flash memory chips, falls amid declining prices. Sharp this month said fiscal first-half group net income will fall 16 percent from a year earlier to ?16 billion (US$136 million) due to falling component prices.

Production for other companies "could help raise overall profitability at Sharp by enabling the company to make better use of its components," said Mamoru Takagi, a senior analyst at Societe Generale Securities (North Pacific) Ltd.

Sharp won't meet its full-year LCD sales target of ?440 billion because of falling prices, Machida said. Prices of the small screens used in mobile phones and other handheld devices will fall by as much as 30 percent in the next year, he said.

"Market conditions won't improve at all in the second half," as prices of flash-memory chips are also falling, Machida said.

The company will meet sales targets for mobile phones and LCD television sets in the year ending March 31 next year, he said. The company in April said sales of its wall-mounted TVs will triple to ?71.6 billion, and mobile phone sales will rise 36 percent to ?183.6 billion.

Sharp in July said it will start producing microwave ovens for sale under Sanyo Electric Co's brand in Europe.

"Unless we secure a certain amount of production volume in total, our cost competitiveness can weaken," Machida said.

Sharp was also approached by mobile-phone makers seeking to outsource handset manufacturing after Sharp-made phones sold by J-Phone group, Japan's third-largest mobile-phone operator, gained popularity, Machida said. He declined to give details.

Sharp makes mobile phones with color screens and functions allowing users to take digital photographs displayed on the handset screens.

Still, Sharp faces competition from other electronics manufacturers in countries with lower labor costs, said Masahiro Ono, a senior analyst at UBS Warburg (Japan) Ltd.

"It would be difficult to maintain competitiveness if Sharp was to make various consumer-electronics with quality almost equal to equipment made by Chinese companies," Ono said.

Sharp's rivals, such as Sanyo, are already producing products sold under rivals' brand names.

Osaka-based Sanyo, the world's largest producer of digital cameras, produces about a third of the devices sold globally under various brand names such as Olympus.

Sanyo, which also makes LCDs and other parts used in digital cameras and mobile phones, increased shipments of cameras by 28 percent by value in the April-September period, Sunao Okubo, the company's executive finance officer, said.

To cut costs, Sharp refit a plant in Mie Prefecture, western Japan, to produce small panels on a glass substrate that can yield three times more screens as rivals, he said.

The company also will this month start using 0.18 micron technology to produce flash-memory chips at plants in Hiroshima prefecture. The technique, which replaces 0.25 micron manufacturing, will allow Sharp to double production of chips cut from a silicon wafer.

Sharp has also developed a new LCD, called CGS LCD, which can contain more chips than current models, saving space and conserving power.

The company plans to sell ?300 billion of the screens by 2005. Sharp plans to build a second plant to produce CGS LCDs after production starts at its plant in Nara Prefecture in October next year, Machida said.

The company will continue to earmark about ?150 for annual plant and equipment spending, with two-thirds to be spent on LCDs and semiconductors, he said.

Sharp shares, down 25 percent this year, fell as much as ?80, or 7.4 percent, to ?999. That's the lowest since January 1999.
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