Sharp, Panasonic 3Q Earnings Recover Modestly

--Sharp, Panasonic earnings recover somewhat in October-December from massive losses in previous quarter

--The two companies maintain earnings outlooks for full fiscal year

--Sharp says planned measures should eliminate doubts about ability to continue as going concern

TOKYO--Japanese electronics manufacturers Sharp Corp. (6753.TO) and Panasonic Corp. (6752.TO) improved their performance in the fiscal third quarter from big losses in the previous quarter, though they warned they still face a difficult situation.

The last time Panasonic and Sharp announced quarterly results, in October and November respectively, the two companies slashed full-year earnings outlooks to forecast record annual losses, sparking concern about the financial strength of the two iconic companies. On Friday, Sharp and Panasonic maintained their outlooks for the full year to March, meaning conditions haven't worsened.

"I'd say we're still not even at the base," Sharp President Takashi Okuda said at a news conference, comparing the company's turnaround plans to mountain climbing. "We are still in a tough spot financially and earnings-wise, so we're going to accelerate our structural reforms without easing up."

Sharp's third-quarter loss narrowed to 36.7 billion yen ($398 million) from a year-earlier loss of Y173.6 billion in the same period a year earlier. On an operating basis, the company bounced back into the black for the first time in five quarters with a profit of Y2.6 billion, beating expectations for a loss of Y2.92 billion from analysts polled by Thomson Reuters. Revenue rose 15% to Y678.2 billion.

Sharp said it was helped by a reduction in fixed costs and assets from its restructuring program, which included a cut of about 10% of its workforce. The company has also slashed capital investment.

The improving results didn't prevent Sharp from reiterating a cryptic statement that while past losses may have raised uncertainty about its future as a going concern, planned countermeasures should eliminate such doubts.

Sharp still needs to find a way to bolster its balance sheet. Shareholder equity ratio--a measure of financial strength--fell to 9.6% as of end-December compared with 9.9% at the end of September. Anything below 10% is considered dire. Its credit rating has been lowered to "junk" status, or below investment grade. It has sold off Y10.8 billion in assets and securities thus far this fiscal year, but still needs to raise capital.

Since a Y66.9 billion investment from Taiwanese contract manufacturer Hon Hai Precision Industry Co. (2317.TW) fell through, Sharp has been working to resuscitate the deal or strike a capital alliances with other companies. Sharp said talks with Hon Hai are ongoing, with Mr. Okuda saying the company aims to strike a deal before a late March deadline.

The company has also reached an agreement to accept a capital injection of up to Y9.9 billion from Qualcomm Inc. (QCOM), but that would still leave Sharp short of its target of raising Y66.9 billion through new equity by the end of March.

Helped by aggressive cost-cutting and a weaker yen, Panasonic returned to a third-quarter profit after incurring a hefty restructuring loss a year earlier. The profit rebound may be short-lived with the company projecting a loss again in its current quarter to March.

Panasonic swung to a third-quarter profit of Y61.4 billion from a year-earlier loss of Y197.6 billion. The result comes three months after Panasonic reported a near-Y700 billion loss, one of the biggest-ever quarterly losses by a Japanese manufacturer. Sales fell 8% to Y1.801 trillion.

Under President Kazuhisa Tsuga, who declared that the electronics conglomerate is no longer a "normal company" because of its inability to generate consistent profits, Panasonic is undergoing a radical shift in strategy. He is expected to unveil a three-year business plan in late March with more restructuring measures.

It is turning away from its once mainstay consumer electronics business to focus on more industrial products that offer better profit margins. Panasonic plans to streamline its operations, focusing on fewer businesses and employing less staff. Over the last year, it has reduced its headcount by 40,000 employees including 10,000 from its domestic workforce.

The restructuring is showing signs of paying off, even as sales of its consumer electronics products plunge. In its audio-visual unit, Panasonic returned to profit in its fiscal third quarter despite a 20% sales decline. The benefits are coming in large part from television sales, which have seen a Y90 billion improvement in operating profit since April.

"We're still in a transition phase," said Panasonic Chief Financial Officer Hideaki Kawai. "We've managed to return to profit, but it's far from sufficient. We need to take the whole company and make a decisive review of our management strategy."

Instead of clawing for razor-thin margins against South Korea's Samsung Electronics Co. (005930.SE) and LG Electronics Inc. (066570.SE) in the competitive television industry, Panasonic sees more opportunity in constructing environmentally friendly buildings equipped with its energy-saving appliances and renewable energy products.

For the full year to March, Panasonic maintained its forecast for a loss of Y765 billion, an operating profit of Y140 billion, and sales of Y7.3 trillion.

The yen's slide since mid-November offers Panasonic some relief. A lower yen increases earnings made abroad when repatriated back into yen and eases price competition with overseas rivals.

Write to Daisuke Wakabayashi at [e-mail] and Kana Inagaki at [e-mail]

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