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June 25, 2006 10:28 pm

Investors slam Sanyo decision to scrap Nokia deal

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Sanyo Electric’s controversial decision to scrap a proposed mobile phone joint venture with Nokia has provoked strong criticism from shareholders.

Sanyo management was criticised on Friday at its annual general meeting, which drew nearly 2,000 shareholders, for its failure to follow through on a mooted alliance with Nokia. Their mood was not helped by the company’s announcement that it would not be paying a dividend.

Sanyo has forecast its first profit in three years, after posting a loss of Y205.6bn ($1.77bn) in the year to March 2006. But its long-suffering shareholders face further uncertainty after the collapse of the joint venture.

Sanyo shares fell another 3 per cent on Friday, and have lost more than 40 per cent of their value over the past two years.

Under the initial agreement, Sanyo and Nokia were to combine their global CDMA businesses into a joint venture in which the Japanese company would take a controlling stake. CDMA, which is used mainly in the US, South Korea and Japan, is the main rival to GSM, the world’s most popular wireless technology.

A joint venture would have created a major CDMA group on a par with Korea’s Samsung.

The collapse of the joint venture is a blow to Sanyo, which was last year rescued from a financial crisis by a Y300bn capital injection from Goldman Sachs, Sumitomo Mitsui Bank and Daiwa Securities SMBC.

The injection, which resulted in a massive dilution of Sanyo shares, was controversial at the time since the new shareholders received shares at a quarter of Sanyo’s then share price.

Analysts say the collapse of the mobile phone deal raises questions over Sanyo’s long-term prospects, as without Nokia it will struggle to boost its mobile phone business.

The US, a key market where the company has been relatively successful, has become more difficult due to price cuts, which are putting pressure on even industry leaders like Samsung.

“If they try really hard they might break even but it will be a war of attrition,” said Michito Kimura, senior analyst at IDC.

Size is particularly important in the US, since mobile phones have become commoditised, he says. However, Sanyo’s shipments there are below those of the Koreans.

Of its other core businesses, its small market share in solar batteries, compared with Sharp’s 40 per cent, means it also faces an uphill battle, said Hideki Watanabe, analyst at Shinko Securities in Tokyo.

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