Sharp illustrated the uncertain outlook for Japan’s technology industry this year as it forecast a respectable profit, even as semiconductor companies NEC Electronics and Renesas Technologies agreed to merge in an effort to stem heavy losses.

Sharp’s forecast of a Y50bn ($517m) operating profit for the year to March 2010, which came as the company reported its second straight quarter in the red, exceeded analyst expectations of breakeven or a small loss. Toyo Keizai, the research firm, had predicted that Sharp would make an operating loss of Y20bn in the year to March 2010.

“In the worsening global economy, there are some favourable factors heading towards a recovery, including the economic stimulus packages instituted by governments around the world, and the fact that the stock market appears to have hit bottom,” Sharp said.

Sharp is the largest supplier of TVs and mobile phones in Japan’s domestic market and a leading supplier of electronic components. Its forecast of a profit and a strong recovery in all business divisions sets a marker for other companies such as Sony and Panasonic that are due to report in the coming weeks.

Sharp’s forecast relies on a strong recovery in the second half, where sales expected to be up by 16 per cent compared to this year. The company also said second half sales would rise on the back of the opening of the world’s most advanced liquid crystal display plant in October, and an expected 80 per cent rise in its production of solar power panels.

For the full year to March 2009, Sharp recorded an operating loss of Y55.48bn, its first ever annual loss, compared to a profit of Y183.7bn the year before.

Separately, Renesas Technologies and NEC Electronics, Japan’s second and third largest semiconductor companies, on Monday said they intended to merge on April 1 2010.

While few Japanese mergers fail once a basic agreement is reached, many contentious points – including the relative value of the two companies, parent NEC’s stake in the new entity and any factory closures as a result of the deal – have yet to be agreed. The merged company is expected to retain NEC Electronics’s stock market listing.

The deal would create the world’s third largest semiconductor company, with a dominant 31 per cent share of the fragmented market for microcontrollers, the main processing chip in applications such as car electronics.

The merger is a long awaited step in the consolidation of Japan’s chronically lossmaking semiconductor industry.

Those losses were shown again on Monday when Elpida Memory, which makes dynamic random access memory chips, announced preliminary net loss of Y180bn on sales of Y330bn for the year to March 2009.

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