On 100th birthday, Sharp seeks salvation in talking vacuum cleaners

The company is in a management crisis with some betting it will go bankrupt

It's probably fair to ask why Japanese electronics maker Sharp -- deep in debt and red ink, cutting workers and salaries, awash in excess inventory in the brutal LCD market -- is actively promoting a line of talking vacuum cleaners.

But the company, which marked 100 years in business on Saturday, has always been willing to bet its future on unproven ideas.

Sharp was founded by a self-taught engineer, Tokuji Hayakawa, whose first invention was a clasping belt buckle in 1912. He lost the company once and after rebuilding it came close to losing it again several more times, and his approach was always to keep trying new ideas until something sold.

"Recessions are the best time to put yourself to the test. People come up with some good ideas when they are suffering," said Hayakawa, who died in 1980.

(Click here for a video on Sharp's history and problems.)

Tales of company founders are fraught with cliches, but this is Sharp's DNA. For every success the company has had in the last decade -- the first radio built in Japan, the first calculators to use LSI (large scale integration) circuits and LCD digits, the first camcorder with an LCD screen, the first consumer cellphone with a built-in camera, a long line of giant, record-breaking TVs -- there is a bizarre counterpart: a calculator with an abacus attached, a tabletop TV with back-to-back screens on the same tuner, a combination hairdryer/shaver, a refrigerator with a built-in microwave, and, of course, a line of talking robot vacuum cleaners.

The company is currently struggling to stay afloat after its over-investment in LCD panel manufacturing and is on track for over US$3 billion annual losses. Deeply in debt and facing a cash crunch, its credit rating has been cut to junk status and it has had to mortgage its buildings and factories for an emergency loan, as well as cut 5,000 workers and slash employee salaries.

It's difficult to see how Sharp can invent itself out of its current predicament, but the company plans to stick to its roots and try. The firm canceled all centennial celebrations in light of its financial woes, opting instead for a short address from President Takashi Okuda last week, who emphasized ingenuity.

"In an effort to find new, future avenues of growth, we will aim to be a company that creates lifestyles which change the way people live and do business, developing products from the point of view of our customers and producing new traditions and trends," he said.

In the meantime, Sharp is negotiating with Hon Hai, the Taiwanese parent company of Foxconn Electronics, for a much-needed investment in exchange for nearly 10 percent of Sharp's shares. A deal was announced in March, but then canceled after Sharp shares plunged in value, and Hon Hai chairman Terry Gou has recently taken a tough stance in negotiations, each bit of bad news from the Japanese side strengthening his position at the bargaining table.

Many investors are actively betting that Sharp will soon go bankrupt. But the company has been to the brink many times in its hundred-year history and has always bounced back.

In 1923, Hayawaka's mechanical pencil (called "sharp pen" or "sharp" in Japanese) business was thriving in Tokyo when the city was struck by the Great Kanto earthquake, a 7.9-magnitude temblor that set off deadly fires that burned for days through the city's wooden neighborhoods. Over 100,000 died in the quake and fires, and the founder lost his wife and two children, as well as his factory, later moving to Osaka to pay off his debts.

He recovered and restarted the company, eventually betting everything on the booming radio market, which drew over 80 domestic rivals. Amid the devastation after World War II, the market collapsed, and in 1950 the firm became mired in a situation similar to its current one: over-invested in a commoditized product, with deep losses adding to its growing debts and facing tough demands from its banks.

Then, as now, the company had to reduce its workforce, but it secured enough capital to survive and kept innovating, developing radios for military use. With a boost in orders from the U.S. government when the Korean War unfolded, Sharp was profitable again less than a year later.

"Hayakawa would see Sharp's current situation as a turning point, a chance to develop new businesses," said Atsushi Okitsu, who helped organize an exhibit about the Sharp founder at the Osaka Entrepreneurial Museum.

"If it hadn't been for the Tokyo earthquake, Sharp might still be making mechanical pencils," he said.

In 1952, Sharp tried to develop its own televisions, hoping to avoid borrowing technology from another company. It succeeded in building an experimental set, but decided it was too far behind to compete and licensed monochrome technology from U.S. maker RCA. Thirty years later in 1986, as RCA went under, Sharp was showing its first LCD TV at electronic shows, a 3-inch model with 92,000 pixels developed completely in-house.

The company continuously poured resources into LCDs and got its ultimate reward in 2008, reporting record profits for the fifth straight year, as its "Aquos" TVs became a global brand. Sharp spent US$121 billion building two massive new LCD factories over the last decade, much of it borrowed on the promise of future earnings.

But its timing couldn't have been worse. The average price of a 32-inch LCD panel for use in TVs has fallen from $1,770 in 2003 to $144 this year, according to data from research firm NPD DisplaySearch.

Even as its fortunes have become become increasingly dependent on its LCD business, which accounted for just 20 percent of revenues last year but still dragged the company into a deep loss, Sharp continues its tradition of quirky tech. Recent products include "Healsio," a family oven that cooks using superheated steam, its "Plasmacluster" line of products that purifies the air by blasting it with high voltage, and "Cocorobo," its squat line of talking vacuum cleaners.

As Sharp desperately sought financing last week to stay afloat into its second century, the scene was relaxed at its massive research complex in Tenri, a quiet, deeply religious town in central Japan. A guide demonstrated one of the moody vacuum robots, sending it zipping across a showroom floor with voice commands until it was time for the next exhibit.

"Go back to your charging station!" she said, enunciating carefully.

"Yeah, yeah," the vacuum answered, and spun off in the opposite direction.

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