Sharp's solar cloud

The 100th anniversary of Sharp comes as the company fights to keep its solar business relevant. Can it survive? To do so may require a look downstream.

On September 15, Sharp celebrated its 100th anniversary. The iconic Japanese company has a long history of innovation in a wide range of business segments as well as in manufacturing technologies; for example, it started commercial production of solar cells as early as 1963 and LCD production in 1973. And until recently, Sharp also had a history of fiscal soundness. The company reported profits year after year, until it recorded its first ever operating loss in 2009.

Now only a few years later, as Sharp approaches its centennial, celebrations will be muted by unprecedented market and financial challenges.

On August 2, Sharp announced bleak results for the first quarter of its fiscal 2012. The company had sales of JPY 459 billion (approximately $A5.5 billion), but suffered a 21 per cent operating loss for the quarter and net loss of 30 per cent. As a result, Sharp announced a reduction in its workforce of 5000, nearly 10 per cent of its employees, and that dividends will not be paid this year. The majority share of its flagship Sakai Gen 10 LCD production facility has already been sold to Hon Hai and color filter makers Toppan and Dai Nippon Printing. Sharp will downscale operations at its Katsuragi production facilities that have had 160 MW of a-Si/µc-Si thin film PV capacity and 320 MW of active c-Si PV cell capacity. Recent articles in the press have further suggested Sharp is even looking to sell off its Sakai thin film solar cell fab, though Sharp officially denied the rumors.

There are several reasons why Sharp finds itself in such a difficult situation. The weak global economy and the extraordinarily strong Japanese Yen are major contributing factors. Almost all of the company’s peers are also suffering similar issues from overcapacity and weak prices. But Sharp’s situation is unique in that the company made multiple big, expensive investments on new LCD and PV manufacturing technologies that have failed to provide originally envisioned returns.

In 2007 Sharp committed to an ambitious plan to build an enormous, state-of-the-art combined LCD and solar module production facility in Sakai Japan. The initial plan was to build two Gen 10 LCD fabs and a Gigawatt of a-Si/µc-Si thin film PV capacity. In addition, the site incorporates key utilities and houses factories of strategic component makers. Cutting edge technologies and economies of scale were Sharp’s strategies to beat its competitors.

In 2007, the Yen was trading at 118 per dollar, thin film PV seemed attractive because polysilicon spot prices were $350/Kg, and 60” LCD modules were selling for about $1500. Today, the Yen is at 78 per dollar, polysilicon is selling for $20/Kg, and 60” LCD modules are priced around $680.

Production began at the LCD fab in August 2009 and in April 2010 at the a-Si/µc-Si solar module plant; capacity is currently frozen at 72,000 substrates per month and 160 MW respectively. The new and unique manufacturing technologies have yet to provide the hoped-for competitive advantage. Gen 10 is optimized for 60” and larger sized LCDs. Sakai has capacity to make over six million 60” LCDs per year, but 2012 world-wide demand is forecast to be only 2.7 million units.

Tandem a-Si/µc-Si conversion efficiencies are stuck around 10%. Highly oversupplied, polysilicon is now cheap and thin film a-Si/µc-Si production costs are not competitive with much more efficient c-Si modules. Both LCD and PV facilities have suffered from inconsistent and low utilization since opening. Sakai is a significant contributing factor to Sharp’s JPY 1.25 trillion (about USD 16 billion) of debt.

Despite the challenges at Sakai, developing and implementing advanced manufacturing technologies remains one of Sharp’s key business strategies. In the company’s August 2 earnings presentation, “IGZO” (indium gallium zinc oxide, a method of producing TFTs) is mentioned numerous times. In April, Sharp became the first to commercially produce IGZO based FPDs, mainly for Apple’s New iPad. But industry sources indicate that Sharp is in danger of being shut out of the iPad panel supply chain because its 9.7” IGZO panel continues to suffer from low yields and high costs. At the same time, Sharp is also ramping up the first Gen 6 LTPS line for iPhone 5 panel production, but again there are indications that the company is having difficulty passing Apple’s acceptance criteria, lagging behind its competitors LG Display and Japan Display.

On the solar front, at this point it’s hard to imagine a scenario in which the Sakai thin film PV module factory would be profitable. And if Sharp wanted to sell it, it is unclear who might want to buy. Rather than cell/module manufacturing, Sharp’s larger solar opportunity may be to leverage its strong brand to grow its domestic downstream PV business. Japan now has one of the healthiest solar markets in the world where PV systems command a premium. Demand this year is expected to reach 1.9 GW and is forecast to grow to 2.8 GW in 2013.

On the positive side, Hon Hai’s investment in Sakai Display Products, the Gen 10 LCD fab, is having a beneficial effect and increasing utilization. Being the contract manufacturer of many display products, Foxconn has an outlet for a high volume of LCD modules. Its partnership with Visio is already driving demand for millions of 60” LCDs. LTPS and IGZO production at the Kameyama 1 and 2 LCD fabs may be challenged now, but incremental improvements in manufacturing technology as the fabs ramp should create opportunities to further increase yield and lower costs to the point where the high-mobility backplane technologies justify the investment.

Developing and implementing innovative new manufacturing technologies is critical to improve performance and reduce costs in both the PV and FPD industries. But as Sharp’s situation shows, new technologies are far from risk free. Sharp’s multiple bets on new manufacturing technologies will unfortunately cast a shadow on the company’s centennial celebration, but there is still hope that improving market conditions and technology advancement will return better results for future anniversaries.

This article was originally published by SolarBuzz. Republished with permission.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles