Sanyo reveals restructuring details

The struggling electronics maker plans to downsize its ailing chip and home appliance divisions.

Japan's Sanyo Electric plans to raise up to 300 billion yen ($2.52 billion) by issuing new shares to Goldman Sachs and other firms, while downsizing its ailing chip and home appliance divisions.

The struggling electronics maker also said Friday it was in talks with several firms to sell a stake in its finance unit, was considering a sale of its organic light-emitting diode (OLED) business, and that it may stop selling TVs in Japan.

Japan's third-largest consumer electronics maker said it fell deep into the red in the first half and widened its full-year loss forecast by two thirds as it writes down the value of inventory and other assets, and provisions for bad loans.

"We know we really have our backs against the wall. I would consider it the ultimate sin to let things get any worse than they are," Sanyo President Toshimasa Iue told reporters on the sidelines of a news conference. "This is our last chance."

Following a management reshuffle in June, Sanyo embarked on a three-year restructuring plan in which it aims to cut 14,000 employees, close or sell the equivalent of 20 percent of its factory floor space in Japan and halve its 1.2 trillion yen ($10 billion) debt.

Sparking the overhaul was an earthquake in Japan last year that ripped through one of its semiconductor factories, ruining equipment and leading to a loss in potential sales. But Sanyo has also been losing money on home appliances and suffering from sluggish sales of digital cameras and mobile phones.

Sanyo's financial health has deteriorated. Its shareholders' equity ratio was in danger of falling to the low single digits this business year even before it widened its loss forecast on Friday, forcing it to ask other companies for help.

In addition to Goldman, it will offer shares to Sumitomo Mitsui Banking, Daiwa Securities SMBC, the investment banking arm of Daiwa Securities Group, and existing shareholders. Sumitomo Mitsui is Sanyo's main bank and a unit of Sumitomo Mitsui Financial Group.

Shortly after the announcement, shares in Sanyo closed up 2.46 percent at 292 yen, slightly outperforming Japan's electrical machinery index. Sanyo's stock has been on an uptrend this month on signs of support from its main bank.

"The fund injection was absolutely necessary and that will ease some strains on its balance sheet," said Hajime Yagi, general manager of Japanese equity investment at Meiji Dresdner Asset Management. "But whether they can restore the core electronics business is a different matter."

Changing fortunes
Sanyo is a symbol of how quickly fortunes can change in the era of digital electronics, where products can quickly become commoditised, prices slide and margins are razor-thin. Just a few years ago, Sanyo was considered a winner in the industry before the quake hit and orders for digital cameras started to dry up.

While in worse shape than its Japanese rivals, Sanyo is by no means alone. Pioneer and Sony are also forecasting red ink this year, unable to keep up with tumbling prices of key products such as flat-panel TVs.

On the other hand, some players such as liquid crystal display TV giant Sharp and digital camera maker Casio Computer have found success by focusing on a few key products where they have a technological edge.

Long criticized by analysts as overstretched and wasting money on unprofitable businesses, Sanyo said it would transform itself from an electronics conglomerate into a company that focuses on products related to the environment and energy.

Among Sanyo's pockets of strength are lithium-ion rechargeable batteries and solar cells.

Sanyo said it would revive its TV division by forming alliances and concentrating production in China. Sanyo's Iue said he would pull out of the Japanese TV market if that business was in the red. He did not say whether it was profitable now.

"I want to make it clear that we will not do things that do not make a profit," said Iue, grandson of Sanyo's late founder.

Sanyo said it would revamp its appliances division by forming alliances and focusing on high-end and commercial-use products such as showcase refrigerators. Sanyo has a tie-up with China's Haier but that relationship has yielded little.

The company will also look to split off its semiconductor division while pulling out of unprofitable products including DRAM, flash memory and LCD drivers. It will instead focus on profitable products such as TV-use LSIs and PDP driver chips.

The company said it would complete the sale of part of its 52.36 percent stake in Sanyo Electric Credit by March, removing the finance unit's 340 billion yen in interest-bearing debt from Sanyo's balance sheet.

Sanyo was in talks with trading firm Mitsui to sell part of the stake, but the Nihon Keizai business daily reported earlier on Friday that the two companies had ended discussions. Iue said Sanyo had received offers from other firms.

Story Copyright © 2005 Reuters Limited. All rights reserved.

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