Sharp's New Focus

How an also-ran made a bet on flat-panel televisions as the critical path to being a major player in electronics

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Surprisingly, Machida's strategy of concentrating on businesses in which the company has a significant edge is rare in corporate Japan, where a bias toward bulking up still reigns. Gerhard Fasol, president of Eurotechnology Japan, a tech consultancy in Tokyo, says, "The Toshibas and Hitachis of this world are in about 20 or 30 different industry areas. There is no focus." Even in secondary business lines, Sharp tries to develop what it calls one-of-a-kind products. A recent example: the new Healsio oven that reduces fat and salt content by cooking with superheated steam. The oven is a smash in Japan, even though it is small and retails for nearly $1,000.

Even in his core business of manufacturing LCDs, Machida is playing to Sharp's strengths and avoiding margin-killing commodity products. Taking on Goliaths like LG Electronics and Samsung Electronics across every LCD product line would be foolish, he says. They're dominant, for example, in mass-market LCD panels used in smaller, cheaper TVs and in laptops. Rather than engage them in a murderous price war, Sharp concentrates almost exclusively on ever larger TVs or on small, high-quality panels found in cell phones, car navigation systems and handheld game players like Sony's PSP and Nintendo's DS. That tactic has enabled Sharp to withstand the margin pressure that's ravaging its rivals. Sharp's small-panel market, says Lehman Bros. analyst Yuki Sugi, is particularly lucrative, since its clients tend to place long-term orders for highly specialized, high-margin goods. Similarly, Sharp has profited richly from being the first company to bring extra-large LCD TVs to market. It rolled out a 45-in. model last year and a 65-in. version last August. While the price of flat-panel TVs overall has tumbled 30% in the past year, Sharp's TV prices have slipped only 3%, not least because margins on those high-end products have not yet been eroded by competition.

The cost of staying ahead in that game is huge, as competitors are pouring resources into the industry. Right next door to the Kameyama plant that opened last year, Sharp is building a larger, more advanced plant, costing another $1.4 billion, that is scheduled to open in 2006. But Sharp's competitors are also building furiously. In a joint venture, LG Electronics and Royal Philips Electronics are spending $5.1 billion to create the world's largest plant for LCDs. Sony, whose lack of flat-screen capacity has been a huge disadvantage, is teaming with Samsung in a $2 billion LCD venture. Hitachi, Toshiba and Matsushita have similarly joined forces. In the U.S., computer maker Dell is getting into the flat-panel game.

For now, however, Sharp is happy to go it alone, hoping that it's strong enough technologically to maintain a leadership position without a partner. It's a gamble but not an unreasonable one, says Gartner analyst Paul O'Donovan. "Sharp is able to stand alone because it has unique intellectual property," he says. "Being that much more advanced, they don't want to share that with anybody else."

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