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Here’s Why Sharp Just Forecast Its First Profit in Three Years

November 1, 2016, 10:38 AM UTC
Sharp Said to Favor INCJ's Rescue Plan Over Higher Foxconn Offer
A pedestrian walks past a Sharp Corp. liquid-crystal display in Tokyo, Japan, on Thursday, January 21, 2016. Sharp is leaning toward accepting a rescue by government-backed Innovation Network Corp. of Japan over a potentially larger offer from Taiwan's Foxconn Technology Group, according to two people familiar with the talks. Photographer: Akio Kon/Bloomberg via Getty Images
Akio Kon/Bloomberg via Getty Images

Japan’s Sharp on Tuesday forecast its first annual operating profit in three years after it cut jobs and withdrew from its loss-making television business in North America.

The liquid crystal display (LCD) maker, now owned by Taiwan’s Foxconn, expects an operating profit of 25.7 billion yen ($245 million) for the year to end-March, recovering from a 162 billion yen loss the previous year.

That, however, was below a 40 billion yen profit reported by the Nikkei business daily last month.

Foxconn, formally known as Hon Hai Precision Industry, bought two-thirds of Sharp (SHCAY) for around $3.7 billion in August. Sharp cut about 6,000 jobs, or about 12% of its workforce in the previous business year.

Over the coming months, Sharp may benefit as a industry-wide supply glut of panels eases following production cutbacks, but it must still compete with Chinese peers that are rapidly expanding capacity, and South Korean rivals that lead in next-generation organic light-emitting diode (OLED) screens.

For future versions of its iPhone, Apple (AAPL) is widely expected to adopt OLED screens, which are generally thinner and are more flexible than LCD panels.

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In September Sharp announced plans to spend $570 million to build OLED production lines that will begin fabricating screens from around April 2018.

South Korea‘s LG Display is investing 10 trillion won ($8.8 billion) in OLED production, while Samsung Display, an unlisted unit of Samsung Electronics (SSNLF) is spending 4 trillion won.

For the second quarter, Sharp posted an operating profit of 2.5 billion yen compared with a 3.5 billion profit a year earlier.