Sharp to post Q3 profit, on course to clear earnings hurdle: sources

Sharp Corp <6753.T> is set to rebound to a quarterly profit, sources familiar with the matter said on Friday, improving the bailed-out consumer electronics maker's chances of convincing lenders and shareholders that it is a viable company.

Sharp, which is due to report its results later in the day, made a third-quarter operating profit of 2 billion to 3 billion yen ($22 million to $33 million), the sources said, compared with market forecasts for a small loss.

Sharp spokeswoman Miyuki Nakayama declined to comment.

Earnings were bolstered by robust sales of home appliances and mobile phones, along with the weaker Japanese yen that helped it compete overseas, the sources said.

Sharp would stick with its 13.8 billion yen second-half operating profit prediction, they added.

That turnaround will allow Sharp's banks to justify a bailout that last year kept the maker of Aquos TVs in business. It would also unlock further investment from Qualcom Inc that would make the U.S. chipmaker its biggest shareholder.

However, Sharp's future remains in the balance, say investors. It faces tough competition in TVs and LCD screens, and with few assets to fall back on, its cash position is tenuous.

"Sharp has a very small breathing space. I don't think Sharp has too much money or too much time to cope with this issue," said Yuuki Sakurai, CEO at Fukoku Capital Management in Tokyo.

"I don't think people are very confident about the future of Sharp at the moment," he added.

Sharp is not as sensitive to foreign exchange movements as more export reliant competitors, but a one yen change in the dollar/yen rate adds $7.7 million to operating profit. The Japanese currency eased by about 9 yen against the dollar over the course of the quarter.

CASH STRAPPED

Japan's largest electronics companies have in past decades gradually ceded their market lead to lower-cost rivals from China and South Korea, such as Samsung Electronics <005930.KS>.

Sharp won a $4.4 billion bailout from banks including Mizuho Financial Group <8411.T> and Mitsubishi Financial Group <8306.T> last October when it faced the repayment of commercial paper debt it didn't have enough money to pay.

The firm had to mortgage its offices and factories in Japan, including one that makes screens for Apple Inc's iPad and latest iPhone, leaving it with only a few overseas plants it could sell to raise more cash.

It warned in November that it may not be able to survive on its own and doubled its full-year net loss forecast to $5.6 billion.

"It could be that the company and some part could be absorbed by an American company or some part by the Taiwanese," said Fukoku Capital's Sakurai.

Sharp may sell its Chinese TV assembly plant to Lenovo Group <0992.HK>, sources told Reuters this month. It is also in talks to sell a Mexico factory to Hon Hai Precision industry <2317.TW>, which earlier bought a stake in Sharp's advanced TV panel plant in western Japan.

Hon Hai balked at an earlier agreement to invest in Sharp directly as the Japanese company resisted giving any significant management control to its Taiwanese partner.

Sharp in December turned to Qualcomm, which agreed to invest as much as $120 million in the Japanese company. Qualcomm has made an initial investment and payment of the rest depends on Sharp returning to profit in the six months ending March 31.

Since the start of the year Sharp's shares -- which slumped 55 percent in 2012 -- have risen 5.9 percent compared with a 7.5 percent gain in the benchmark Nikkei 225. Its shares rose 2.9 percent on Thursday, while the benchmark added 0.4 percent.

($1 = 91.2600 Japanese yen)

(Additional reporting by Nobuhiro Kubo; Editing by Richard Pullin)