Foxconn and Sharp Seal the Deal

5/11/2016 11:32 AM 

Foxconn’s off-and-on again takeover deal with Sharp has been approved at last by the boards of both companies, with Foxconn set to acquire two thirds of Sharp – including its thin-film transistor liquid-crystal display (TFT LCD) business -- for $3.5 billion. The two companies had been poised to make the transaction earlier this year, with Sharp agreeing in February to accept a $6.2 billion bid from Foxconn. Then Foxconn received a list of “contingent liabilities” from Sharp, said by numerous unconfirmed sources to be in the area of $2.5 billion. At this point Foxconn put the acquisition on hold for further research, until announcing the new deal at the end of March. Presumably the new and lower price reflects the “liabilities.”

Foxconn, the world’s largest electronics contract manufacturer -- perhaps best known as the maker of Apple’s iPhones -- stands to gain both IP and market share with this acquisition.  According to David Hsieh, Senior Director at market research firm IHS, Foxconn is  already a leading supplier of  TFT LCDs through its subsidiaries Innolux and Century “The convergence of Foxconn’s business with Sharp’s TFT LCD business and other innovative developments, such as active-matrix organic light-emitting diodes (AMOLEDs) and larger TV displays, creates a powerhouse with the largest TFT LCD production capacity and research capabilities in the world,” says Hsieh.

For Sharp, a 100-year-old company known for its innovative display products, some kind of acquisition seemed inevitable. Financially, the company has been foundering; it received two bank bailouts in the last four years. In the final nine months of 2015, Sharp posted a net loss of about $960 million.

And it is not alone. Around 2012, articles with titles like this one from CNET began proliferating: “The era of Japanese consumer electronics giants is dead.” The article began, “Once venerable names in consumer electronics such as Sony, Panasonic, and Sharp have been besieged by competition from rivals in the U.S., South Korea and, increasingly, China.” [1] Oft-cited reasons for this fall from grace include a failure to react nimbly to changing markets, an emphasis on building machinery vs. writing code, and sometimes, a lack of innovation.

This last reason does not apply to Sharp, which has in recent years introduced a number of display innovations, including a new indium (In), gallium (Ga), and zinc (Zn) (IGZO) technology that earned it (with co-developer Semiconductor Energy Laboratory) a 2013 Display of the Year award from SID. Hsieh offers a few ideas about why a highly innovative, well-regarded company like Sharp might fall on difficult times.

“First,” he says, “Sharp is excellent at developing new technology but comparatively slower than its competitors to bring these technologies to market. This is related to the company’s culture; it is very engineer-centric but not commercial-centric.” Hsieh believes that Foxconn’s skill with the commercial aspects of the display business (it has handled its key customer Apple well for several years) may be a positive addition for Sharp.

Hsieh also mentions that competition from Korean, Taiwanese, and Chinese companies who have been very fast to commercialize products and ramp up capacity, put pressure on Sharp, as well as on other Japanese companies.  Last, he adds, “Sharp’s costs (due to the higher overhead in Japan) and organizational structure and culture hamper the company in terms of making fast reforms -- even though they have great innovative technology development.”

Hsieh reports that Foxconn’s Innolux subsidiary is already in the process of increasing its production capacity with a Gen 8.6 TFT LCD fab in Taiwan. It is also building three Gen 6 low-temperature poly-silicon (LTPS) TFT LCD fabs in Taiwan and China. With the acquisition of Sharp, currently the leading maker of high-resolution LTPS TFT LC smartphone displays, low-power oxide TFT LC tablet displays, and a-Si based TFT LC automotive displays, Foxconn is also probably eager to invest in an AMOLED fab for flexible smartphone displays, says Hsieh. In terms of TFT LCD production capacity, the new company will account for 21% of the global capacity in 2016, surpassing LG Display, Samsung Display, and BOE, according to IHS’s  Display Supply Demand & Equipment Tracker report.


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