Sharp Corp.

The stable outlook reflects our view that Sharp's consolidated profitability and major cash flow-related ratios are likely to remain stable for the next one to two years, despite the difficult business environment. We hold this view because we believe the company will reap the benefits of cost reductions achieved through use of Hon Hai's production facilities and it will control earnings volatility in its LCD business. We might consider a downgrade if we determine that Sharp's EBITDA margin will fall to and remain below 6%, likely owing to a drastic deterioration in the LCD business environment. We might also consider a downgrade if Sharp substantially increases capital expenditures amid a slow recovery in earnings, causing debt to EBITDA to exceed

...S&P Global Ratings expects Sharp Corp. to maintain stable profitability in its core LCD business in comparison with its competitors amid a challenging business environment. We believe the Japan-based electronics maker, as a major producer of LCD panels and LCD TVs, maintains a level of competitiveness in these highly competitive industry segments. In its LCD panel business, Sharp has strategically shifted its product mix from small panels for smartphones to midsize panels that have more uses, such as for devices used in business-to-business (BtoB) transactions. As a result, we think the company can partly reduce the risks of: potentially high volatility in earnings in its LCD business, which may arise from fluctuating short-term supply and demand; fierce competition with peers including Chinese manufacturers amid market saturation; and the substitution of small panels with organic light-emitting diode (OLED) panels. Low profitability in Sharp's LCD and device businesses is likely to continue...

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