Sanyo Elec now sees annual loss, unveils job cuts

Struggling Japanese electronics maker Sanyo Electric Co. said on Friday it now expects to fall into the red this business year as it unveiled more job cuts amid weak sales of digital cameras and mobile phones.

The layoffs are part of the latest in a string of restructuring moves by Sanyo, which has already cut 15 percent of its workforce and issued $2.6 billion worth of shares to three banks at a deep discount to shore up its wobbly finances.

Sanyo said the new reform measures would cost it about 40 billion yen ($344 million), which along with tumbling prices of mobile phones and digital cameras forced it to revise down its forecast for the year to March to a loss of 50 billion yen.

The new forecast marks a sharp reversal from its prior estimate for a 20 billion yen profit and would bring its combined losses over the past three years to about $3.7 billion. It cut its annual sales estimate by 8 percent to 2.2 trillion yen.

Given the dire conditions, some investors were looking for more drastic measures such as pulling out of businesses. Sanyo denied a newspaper report that it was looking to spin off its cellphone division and sell most of it to a competitor.

"If management is not willing to be daring, the company will not be able to survive," said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.

For the six months ended September 30, Sanyo reported a group net loss of 3.62 billion yen, beating its own forecast by about 4 billion yen and a big improvement on the 142.53 billion yen loss a year earlier when restructuring costs battered its bottom line.

On an operating level, Sanyo was able to return to profitability thanks in large part to cost cuts in its semiconductor unit as well as strong sales of commercial products such as showcase refrigerators.

But it has been hit by fierce price competition in the digital camera market from low-cost Taiwanese makers and was beaten to the market by Motorola Inc. and Samsung Electronics Co. in launching an ultra-slim mobile phone.

The downturn in mobile phones and cameras is particularly worrisome for Sanyo because they have been positioned as core businesses indispensable to its recovery, along with rechargeable batteries and solar cells.

"We were late to adapt to rapid changes in the mobile phone market," Sanyo Vice President Koichi Maeda told a news conference.

BROKEN PROMISES

Sanyo has already suffered a series of setbacks this year.

In June,
Nokia scrapped a plan to jointly make mobile phones with Sanyo. And in August Sanyo announced that an alliance with Quanta Computer Inc. in the TV business would be much narrower than initially hoped.

The 2,200 job cuts are equal to about 2 percent of Sanyo's global workforce of 105,000. It also plans to shift more production of mobile phones overseas and reduce the number of its affiliates by 100 from 300 over the next three years.

Those measures will come on top of a restructuring plan last year under which it eliminated 14,000 jobs, spun off its loss-making chip division and sold a stake in debt-laden Sanyo Electric Credit Co. to reduce its debt burden.

"Making sure the company is on course for profitability next year is my responsibility," Iue said, indicating that he would not resign over this year's loss. "We will accelerate restructuring and finish it all this year."

Investors have heard that before.

At a general shareholders' meeting on February 24, Iue asked for "one more chance" in seeking approval for a 300 billion yen issue of preferred shares that will lead to a massive dilution of existing share value.

Since that day Sanyo's shares have lost about 40 percent of their value and earlier this week hit a 31-year low. The stock closed Friday down 1.64 percent at 180 yen, against a 1.13 percent fall in the benchmark Nikkei average

Because the preferred shares are convertible to common stock at 70 yen, Goldman Sachs Group Inc., Daiwa Securities SMBC and Sumitomo Mitsui Banking Corp. still stand to make a tidy profit if they were to convert their shares at current levels.

But the banks are expected to step up the pressure on Sanyo to take bolder restructuring steps. In addition to selling the cellphone business, the Nihon Keizai Shimbun reported this week that Sanyo would look to unload its chip operations as well.

In light of this year's downturn, Sanyo cut its net profit forecast for the next business year to March 2008 to 20 billion yen from a previous target of 62 billion yen. It cut its 2007/08 operating profit forecast roughly in half to 50 billion yen.