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Sharp & Renesas Get Bailouts: Who’s Next?

Whether you live in Europe or in the United States, bailouts have become a common phenomenon. Banks, countries, pension funds, and auto makers have all gotten cash infusions to keep them afloat.

As the economic crisis drags on, high-tech companies are now also seeking public assistance. Just recently, Japan's {complink 4907|Sharp Electronics Corp.} and {complink 12722|Renesas Electronics Corp.} each secured billions of dollars to plug immediate debt holes.

Japanese banks have put up more than $6 billion in loans to resolve Sharp's and Renesas's near-term cash crises, but doubts about their future still linger, according to a Reuters report. Chipmaker Renesas in August forecast its worst-ever annual loss, blaming sinking prices and a strong yen, and Reuters cited sources that expected 100-year-old Sharp to lose more than 100 billion yen ($1.29 billion) this fiscal year because of competitive pressure from rivals such as South Korea's {complink 4751|Samsung Electronics Co. Ltd.}.

Sharp, which makes TVs, microwaves, and other consumer devices, confirmed in September that it received a 360 billion yen bailout led by Mizuho Financial Group and Mitsubishi UFJ Financial Group, notes Reuters. To secure bank backing, Sharp had to agree to drastic cost cuts such as selling overseas TV assembly plants, possibly to Hon Hai (doing business as Foxconn), and shuttering overseas solar panel operations.

Meanwhile, Renesas said it has secured 161 billion yen in syndicated loans from four Japanese banks including Mizuho Corporate Bank Ltd and Bank of Tokyo-Mitsubishi UFJ Ltd to refinance its debts, according to a wire story.

So, could we be seeing more of these kinds of requests from other high-tech companies in Japan or other geographies? I'm not an expert in this kind of stuff, but my general feeling (and perhaps this is because I live in Barcelona and hear all too often about the Catalan, Spanish, and European debt problems) is that the worst is not yet behind us. The economic crisis is still being felt in many sectors, negatively affecting demand and forcing extreme austerity measures and corporate reorganizations. So, my guess is yes, more companies and industries will be deemed worthy of protecting and receiving bailout loans because of the potential impact of their failure on national GDP.

Should these companies be bailed out? I'm not sure. Obviously, high-tech companies' well-being affects thousands of employees, and a lack of bailout support could put a country's wealth in greater jeopardy. And, yes, the chances of recouping payment on loans are much higher if the company continues to operate.

But I also subscribe to the idea of survival of the fittest. Not all companies will survive this extended global recession. Some line has to be drawn on when it's reasonable to stop throwing good money after bad. That line, however, seems to be drawn in sand and not in concrete.

6 comments on “Sharp & Renesas Get Bailouts: Who’s Next?

  1. t.alex
    October 4, 2012

    I have worked with Renesas before and I believe it should not be bailed out. The way it works, the internal conflicts it has from merging companies, the lack of innovation and a lot more. The only reason it is bailed out is it supplies chips for major customers in Japan.

  2. SP
    October 5, 2012

    Yes of course these company's must be bailed out. When an organization gets into economic crisis, not only the employees gets affected but also their families. The high tech companies must be bailed out, but to what extent is a good question. Because in business no one wants to loose money. But then sometimes your country's pride and image comes at stake so some descisions are taken accordingly.

    Likewise in India, all the headlines have been taken away by ailing Kingfisher airlines. I guess the government is also not coming forward to bail it out. Today we read in newspapers that a family member of an employee of this company committed suicide as her husband was not paid from last 4 months. Its so sad. It was one of the most sophisticated and paush airlines of this country that is now debt ridden.

    I guess in business one need to take tough decisions whether to continue or kill. Government can bailout ailing companies once or twice but at the end the companies need to focus on whats going wrong, fixt it, help their employees with good severance package and help them in getting settled with other competitive business. Afterall everyone needs to pay their bills! My heart goes out to Sharp because their products are fantastic and they must be doing many things right that they are here from 100 years.

  3. Jennifer Baljko
    October 5, 2012

    t.alex and SP – I hear both of you. t.alex – to your point, businesses come and go, that's just the way it is. But, SP, you're right the ripple effect  becomes very personal, and yes very sad. We've all heard stories or know people, family, friends who are really, really struggling through this crisis. I got to believe, though, that there is some viable solution somewhere between the extremes of  constant business bail-out and employees suicides.

  4. Barbara Jorgensen
    October 5, 2012

    If political rhetoric can be believed, the GM bailout worked as did the US govt support of its banks. I tend to lean more toward laissez-faire when it comes to governments and business, yet the US seems to think the president is solely responsible for the economy. I don't think there is a good answer here. If a government, such as Japan's, can make a compelling case for keeping citizens employed and its economy on track, then it is the right thing to do. But I think it should be on a case by case basis rather than as a blanket policy.

  5. t.alex
    October 6, 2012

    I have seen Renesas employees work, really hard. However, the management is clearly lacking leadership and hence lots of the effort is really wasted. If the government bailed out, I think it should seriously replace the management team first.

  6. bolaji ojo
    October 7, 2012

    Japanese electronic companies have been in reorganization mode for more than one decade — Japan itself has been trying to revitalize and help its economy grow for even longer. Japan doesn't change easily and the problem facing its biggest electronic companies will not be quickly resolved. I doubt this will be the first time they get bailed out.

    This option isn't available, though, to companies in North America and counterparts in Europe. The U.S. and Western European countries have enough on their hands!

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