Japan's Sharp Corp forecast an unexpected jump in operating profit as demand for smartphones and tablets boosts sales, but said a temporary production halt at two TV panel plants earlier this year would force it to book an extraordinary charge.
For the year ending March 2012, Sharp expects operating profit to rise 23 percent to 97 billion yen ($1.2 billion), substantially above the consensus of 56.8 billion yen, based on the average of 30 forecasts by analysts polled by Thomson Reuters I/B/E/S.
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As part of a strategy aimed at tapping the burgeoning tablet market, Sharp said it will switch most production at its Kameyama liquid-crystal display (LCD) panel plant in western Japan to smaller panels used in popular devices such as Apple's iPad.
Once a mainstay of the company's LCD TV business, the plant is increasingly seen as redundant as competition heats up from rivals including LG Electronics and Samsung Electronics.
Sharp says it has a technical advantage in manufacturing larger panels of 60 inches or more, as well as the small panels used in mobile devices, but will scale back production in the commoditized middle sector.
"South Korean companies are losing money in the 30 to 40 inch market," Sharp President Mikio Katayama told reporters in Tokyo on Friday. "Sharp is not going to do battle in a market where we lose money even if we win."
Analysts expect global tablet sales to soar to more than 50 million units in 2011. Apple boasts 80 percent of the market, but it is attracting many new entrants.
Separately, Sharp said on Friday it would source midsized panels from cost-competitive alliance partners in China and Taiwan. Katayama told reporters talks about a plan for Sharp to build its own cutting-edge TV panel plant in China had stalled.
The Nikkei business daily reported that Sharp is in talks with Taiwan's Hon Hai Precision to jointly procure parts for LCD production. Katayama declined to confirm the report, but said Sharp would work with overseas companies to cut costs.
Sharp was forced to suspend output at two TV panel plants in April, after the March 11 earthquake triggered a plunge in demand and shortages of a gas used in the production process.
The company said on Friday it would take a 27 billion yen extraordinary charge in the April-June quarter following the stoppages.
For the current business year, Sharp expects to sell 15 million flat-screen TVs compared with 14.8 million the previous year.
Like many of its rivals, Sharp delayed its annual earnings guidance as it weighed the impact of the disaster on consumption and on its supply chain.
"We know we cannot let our guard down, given the tough situation that is expected to continue following the earthquake and the nuclear crisis," Katayama told reporters. "But there are also positive signs, such as the growing demand for smartphones, increasing interest in energy-saving devices such as LED lights and an increase in demand for solar panels."
Sharp's shares jumped immediately after the earnings forecast announcement, trading up as much as 4.2 percent to a nearly two-month high of 768 yen, but fell back to close up 0.1 percent at 738 yen in a broader market down 0.7 percent fall.