Silicon Valley cash alone won't rescue Sharp. Shares in the ailing Japanese electronics group jumped 7 per cent on Nov. 14 after reports that U.S. technology groups Intel and Qualcomm may invest ¥30-billion ($374-million). But that will hardly ease Sharp's debt pile or its continuing cash outflows.
It's not the first time that Sharp has flirted with potential investors. In March, it announced a deal whereby Hon Hai, the Taiwanese assembler of iPhones and other gadgets, would inject ¥67-billion for a near-10-per-cent stake. But the agreement unravelled as Sharp's financial position deteriorated and Hon Hai chairman Terry Gou demanded greater management input.
Earlier this month, Sharp raised its forecast full-year operating loss to ¥155-billion and warned about its ability to continue as a going concern – though it subsequently claimed the English translation exaggerated its predicament. Sharp shares have slumped to new lows: If Qualcomm and Intel bought ¥30-billion worth of shares at the pre-rumour price, they would end up with a 15-per-cent stake, despite injecting less than half the amount promised by Hon Hai.
Sharp has at least bought some breathing room. An agreement with its lenders, struck in September, should cover its refinancing needs until early 2014. Cutting workers' salaries by up to 10 per cent will help reduce costs. But Sharp's net debt is $12.3-billion – almost six times its market capitalization – and the company depends on external financing just to fund its day-to-day business. Operating cash outflow in the six months to September was ¥27.8-billion – almost equivalent to Qualcomm and Intel's reported investment.
Ailing Japanese companies have tended to rely on domestic rivals and banks to help them postpone the inevitable. It's not yet clear what Qualcomm and Intel will get in return for their cash, but their involvement is more likely to be grounded in commercial logic rather than some misplaced sense of corporate nationalism. If Silicon Valley thinks Sharp has a future, other shareholders just might too.