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Sharp Corp's Yaita factory, where it assembles Aquos televisions and solar panels, is seen through a barbed wire fence in Yaita, north of Tokyo August 17, 2012.

STAFF/REUTERS

Hon Hai Precision Industry's founder and chairman Terry Gou left Japan last week without a new deal for the 9.9 per cent stake in electronics maker Sharp Corp. he proposed buying back in March. That leaves Sharp in limbo. But even a swift deal might not have been enough to keep the troubled company above water.

Sharp shares have lost 60 per cent of their value since the original deal was announced. Investors have realized the $855-million on offer for the Sharp stake wasn't enough to fix the company's problems. For the money he originally offered, Mr. Gou could now buy about a third of the company – hence the aborted negotiations.

The problem is that Sharp is running out of cash. The company had $2.8-billion of cash on its balance sheet at the end of June. Generously assume that it could monetize its inventories and call in payments due from customers, and that its operations can avoid burning cash this year, and it might get its hands on just over $14-billion in total.

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That will soon trickle away. Based on the company's $26-billion cost of sales in the last accounting year, it could keep its factories running for six months. And that assumes Sharp doesn't invest in its businesses, and can delay payment on the $9.2-billion short-term borrowings that come due this year. Hon Hai's cash would have bought the company at best a couple of weeks.

Sharp needs more, say a massive equity injection or a restructuring of its debt, which amounts to some $15.6-billion according to Reuters data. Another option may be selling off Sharp's money-losing LCD and solar cell businesses. Assuming rather generously that it could do so at roughly the same price as other such businesses relative to their estimated sales for this year, Sharp might be able to raise around $8-billion.

Even that won't necessarily change Sharp's long-term fortunes. For a buyer, turning around its LCD business amid a global glut may be a big ask. Mr. Gou may not want to spend big money on a low-margin business that weighs on Hon Hai's own bottom line. The only solution for Sharp's LCD-inflicted malady may be to pull the plug.

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