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Sharp's Aquos TVs struggle to compete with rivals. Photo: Reuters

Japan's iconic Sharp is now a zombie company that needs killing off

Once an innovator, century-old firm was bailed out in 2012 only to lose US$8b over next 2 years

Sorry, but can anyone provide a good reason why Sharp should still be in business?

As Japan Inc icons go, the beleaguered tech giant counts as borderline royalty. Founded in 1912, the year Emperor Meiji, whose reforms transformed Japan from feudal state to capitalist power, died, Sharp was among the core engines of the nation's global ambitions. In 1964, Japanese revelled in Sharp's introduction of the first transistor calculator just in time for the Tokyo Olympics - the nation's post-second world war return to the global stage. In 1997, the Osaka-based star gave the world the first commercial camera phone.

Now, it's hard to figure out a business in which Sharp can really excel. In 2012, when the company should've been celebrating its 100th anniversary, executives were releasing the company's worst financial results ever (nearly US$5 billion of losses). Despite a slew of cosmetic tweaks since then - raising equity from the public, selling off stakes in businesses and, in June 2013, naming a new president, Kozo Takahashi - the bleeding has not stopped. Sharp is forecasting a US$251 million loss in the 12 months ending March as its Aquos TVs struggle to compete against China, Korea and Japanese rivals like Sony.

Display panels show little promise given this voracious competition. Sharp says it's banking on selling smartphone panels to China's handset makers. Yet mainland suppliers can make high-quality ones at lower prices. On Thursday, the company denied reports it's selling off its loss-making solar panel business.

That begs the question why not. Banks bailed out the company in 2012, only to lose US$8 billion over the next two years. In a more conventional market economy, the firm would've gone bust by now - or at least been acquired.

"Sharp's core business is as bad as it could get," said Jefferies Group analyst Atul Goyal. "The company should not be alive. They can't invest … can't fight."

Sooner or later, Japan has got to get serious about letting zombie companies like Sharp die.

Since its heyday, Sharp has overexpanded, lost track of core competencies and grown complacent thanks to ready support from banks.

Sharp has remained alive mostly because of the cozy web of cross-shareholdings that bind the company and its creditors. The company's management declared this week that it was considering "drastic reform", including cutting executive pay by as much as 20 per cent (a tired Japan Inc manoeuvre that makes great headlines, but changes nothing). In fact, the strategy looks to be a familiar one - hitting up the bankers again.

Where have we heard this before? Tokyo has found itself in this same predicament countless times over the last two decades. Continuing to prop up complacent companies takes the onus off executives to create new products and wealth that generate jobs and higher incomes. It deadens the creative destruction that chastens stagnant industries - like Japanese tech - and makes way for innovative and new ones.

This article appeared in the South China Morning Post print edition as: Iconic Sharp now zombie company that needs killing
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