A Blog by Jonathan Low

 

Aug 12, 2016

Contractor To Competitor? Foxconn's Acquisition of Sharp Signals Strategic Shift

Foxconn has solidified its position as the dominant supplier in the smartphone market - and likely established its ability to move further up the value chain by launching its own, more competitive, products if and when it so chooses.  JL

Kana Inagaki reports in the Financial Times:

Foxconn's (purchase) gives the Apple assembler a century-old electronics brand and the technology know-how that pioneered solar panels and liquid crystal displays. (But Sharp) and Foxconn have grappled with a slowdown in Apple’s iPhone sales, which fell 15 per cent year-on-year in the three months to June.
Shares in Sharp surged by a fifth as Taiwan’s Foxconn completed its $3.8bn takeover of the cash-strapped Japanese display maker following approval by the Chinese antitrust authorities.
The green light from China was the final hurdle for Foxconn, formally known as Hon Hai Precision Industry, to clear in its acquisition of lossmaking Sharp — a deal that had been scheduled to be completed by the end of June.
Shares in Sharp rose 19 per cent to ¥106 on Friday in Tokyo after Foxconn released a statement late on Thursday night.
“Our investment in Sharp has completed all necessary reviews by the relevant governments, and our company and Sharp will now move to complete the transaction in accordance with our agreement as soon as possible,” Foxconn said.
Foxconn agreed in March to pay ¥388.8bn ($3.8bn) for a two-thirds stake in Sharp, giving the Apple assembler a century-old electronics brand and the technology know-how that pioneered solar panels and liquid crystal displays.
But the long wait for Foxconn’s injection of cash had made investors uneasy, especially since the Taiwanese group had earlier walked away from a similar deal in 2012.
Sharp said the full payment was made on Friday and that the company would receive ¥300bn in new syndicated loans from two Japanese banks.
Shares in Sharp slumped to ¥87 earlier this month, falling below Foxconn’s offer price of ¥88 a share after the Japanese maker of iPhone displays suffered a bigger-than-expected net loss of ¥27.5bn in the fiscal first quarter.
The industry, including Foxconn, has grappled with a slowdown in Apple’s iPhone sales, which fell 15 per cent year-on-year in the three months to June.
Earlier this week, Sharp’s rival Japan Display, also revealed that it was seeking financial support from a Japanese government-backed fund as it faces heavy investment in OLED technology to compete against South Korean rivals.
Foxconn itself reported on Thursday that its net profit for the three months to June fell 31 per cent to NT$17.7bn (US$565m) from a year earlier. Its shares were down 3.7 per cent on Friday.
“There is relief over the investment, but there is going to be constant concern whether Sharp can revive itself under Hon Hai amid tough structural challenges in the industry,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management.
With the takeover completed, Sharp said its chief executive Kozo Takahashi has stepped down and Tai Jeng-wu, a close aide of Foxconn’s founder Terry Gou and a fluent Japanese speaker, would be appointed following a board meeting on Saturday.
The Japanese group is bracing for more radical restructuring under Foxconn with Mr Gou warning of a need to further reduce Sharp’s workforce, in a reversal of his commitment before the deal to protect jobs.
In a sliver of light for the Japanese industry, Toshiba said on Friday that it swung to a net profit of ¥79.8bn for the three months to June thanks to the sale of assets and other restructuring measures in the wake of a $1.3bn accounting scandal. Shares in the nuclear-to-semiconductors conglomerate rose 3.8 per cent.

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