TOKYO (Reuters) - In private conversations early last year, executives at Japanese display maker Sharp Corp dubbed their new client "winning horse", reckoning fast-growing Chinese smartphone maker Xiaomi would be a sure and lucrative bet.
Within months, however, Sharp found it was sharing Xiaomi revenue as upstart rival Japan Display also struck a deal to supply the Chinese firm with its "in-cell" displays.
It was a pattern repeated over years of drift as Sharp, confident in its technological superiority, found itself blindsided by rivals.
It also struggled to persuade customers to pay a premium for its high-end "IGZO" display technology, which features high resolution and low energy consumption, as rivals quickly outmanoeuvred it with competitive technology.
Once among the top display suppliers to Apple Inc, Sharp has been pushed aside by the likes of LG Display and Japan Display, as the U.S. device maker diversified its supply chain amid longstanding concerns over Sharp's prospects.
Critics say Sharp often over-estimated its market position, became complacent and over-invested in manufacturing capacity as liquid crystal display (LCD) prices were tumbling.
Sharp announced on Thursday its second major bail-out in three years, with main lenders Mizuho Bank and Bank of Tokyo-Mitsubishi UFJ injecting a combined 200 billion yen (1.06 billion pounds) in a debt-for-equity swap.
CEO Kozo Takahashi acknowledged Sharp had often been slow to pick up on changes. "If we hadn't made mistakes, we wouldn't be here," he said at a news conference. "Our governance and management was weak in terms of catching on to change and reacting as a company."
But he also put some blame on a "rapid deterioration" in the market, and shrugged off calls to consider spinning off the display business.
On Friday, shares in Sharp fell more than 10 percent to their lowest since December 2012. The stock has fallen by around 85 percent in the past 5 years.
Analysts say a merger with Japan Display would make sense, but insiders at Sharp - named after a mechanical pencil invented by its founder over a century ago - have scoffed at the idea of a deal with what they consider a lesser player.
Even as the losses grew and debts piled up, and it was clear Sharp would need more help from banks, executives touted the company's proud history.
"Sharp was the first to make radios in Japan and the first to mass produce TVs here ... We want to continue being the kind of company that's at the forefront of change," Chief Technology Officer Shigeaki Mizushima told reporters in January at the Consumer Electronics Show in Las Vegas, where he presented plans for new high-end TVs costing close to 1 million yen ($8,344).
Sales of TVs fell around 10 percent in the year through March.
The decline at Sharp can be traced back to a decade ago, according to some industry experts, when the company spent hundreds of billions of yen to expand its LCD manufacturing facilities in Kameyama, a rural city in central Japan.
LCD panel prices were already falling by around 30 percent year-on-year at the time, according to market research, but Sharp sought economies of scale to gain an edge over its rivals. It followed later with a 430 billion yen investment in a new LCD plant in Sakai, near Osaka, which started operating in 2009.
These big outlays, combined with slower-than-expected sales, pushed Sharp to seek a 360 billion yen bail-out from its banks in 2012. It sold a 38 percent stake in the Sakai plant to Taiwan's Hon Hai Precision Industry Co Ltd that year.
Takahashi is to cut Sharp's global headcount by a tenth and implement reforms to ensure the company responds more swiftly to shifts in the market, but his rejection of more drastic changes such as spinning off parts of the business has left analysts doubting its long-term prospects.
Brokerages downgraded their view on Sharp stock, with Merrill Lynch rating it an 'underperform', and cutting its price target to 60 yen a share from 260 yen.
Additional reporting by Reiji Murai in Tokyo and Vincent Lee in Seoul; Editing by Ian Geoghegan