In late 2007, not long after stepping in as president of Sharp, Mikio Katayama learned an important lesson about the energy industry. Katayama was meeting with diplomats in Japan and government officials overseas to discuss Sharp's business producing photovoltaic solar panels. He had figured mounting evidence about global warming would be a wake-up call for countries to invest more in clean energy technologies. But instead, officials talked about solar energy in terms of national security. "That's when we realized that it wasn't just about saving the environment," he recalled in a recent interview.

Katayama ordered his management team to rethink Sharp's solar business. In the past the Osaka company would rush factories into service when building a new business. But Katayama felt that wouldn't work with solar panels. Among his fears: Countries might not want to reduce their dependence on imported oil only to replace that with a dependence on imported solar panels.

Today, Katayama hopes to avert such a scenario by building more local solar panel factories through joint ventures. The decision could help the company access new markets with fewer resources than it would need to put up a new factory at home. Sharp's announcement last November that it was discussing a deal with Italian utility Enel marks the first such deal. The two are expected to set up a new solar-panel-making plant in Italy and recruit another investor to share the cost. They could extend their tieup to several solar-power-generating facilities they would run jointly.

Freeze in Private-Sector Investments Sharp executives say they aren't abandoning their manufacturing base in Japan. By next spring the company plans to open a $700 million plant in Sakai near Osaka. The facility, built on the same premises as Sharp's newest factory for liquid-crystal display panels that go into flat-screen TVs, will initially produce 480 megawatts' worth of so-called thin-film solar cells annually, mainly for Japan, the U.S., and Western Europe.

For now, Sharp is in no hurry to ramp up output. Researcher iSuppli predicts that worldwide installations of solar panel systems will drop 32% to 3.5 gigawatts this year, from 5.2 gigawatts last year. Revenue declines could be even sharper -- by 40%, to $18.2 billion -- as the price per watt in a solar cell falls. Cutbacks in Spain are mainly to blame. What's more, the recent financial turmoil has put a freeze on private-sector investments in renewable energy. But the market could bounce back by 2010, iSuppli says.

Sharp's solar business accounts for less than 7%, or $1.6 billion, of its $30 billion in annual revenues.