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Sharp raises earnings forecast again under Hon Hai management

2017/02/17 22:41:41

(CNA file photo)

Taipei, Feb. 17 (CNA) Japan's Sharp Corp. raised its earnings forecast again on Friday, the second time in February, as a result of the company's efforts at cost cutting after Taiwan-based manufacturing giant Hon Hai Precision Industry Co. (鴻海) completed a deal in August to take a majority stake in the Japanese firm.

In a statement, Sharp said that its operating profit for the fiscal year ending in March will hit 47.4 billion yen (US$4.19 billion), an upgrade from an earlier estimate of 37.3 billion yen made on Feb. 3.

Sharp said that the improved outlook reflected lower operating costs after the company revised its purchasing contracts in a favorable way.

In February, the Japanese firm had revised upward its forecast of operating profit to 37.3 billion yen for the year to March, from the previous prediction of 25.7 billion yen, in reflection of its improved financial conditions.

After coming under the control of Hon Hai, which had acquired a 66 percent stake in Sharp for US$3.5 billion, the Japanese firm had also reported a profit of 4.2 billion yen for the October-December period.

That was a big improvement on the 24.7 billion yen loss recorded in the same period of the previous year. It was the first quarterly profit posted by Sharp in two years.

Sharp attributed the improved bottom line to the swift decision-making style of Hon Hai to focus on cost reductions.

The latest earnings report echoed the ambitions of Tai Cheng-wu (戴正吳), the new president of Sharp, who used to be the deputy of Hon Hai Chairman Terry Gou (郭台銘) before taking the helms at the Japanese firm. Tai had said that he would help Sharp swing to profit in the second half of 2016, and revamp the company by 2017.

Due to Sharp's improving bottom line, an Asia-based brokerage has raised a target price on shares in Hon Hai, an assembler of iPhones and iPads for Apple Inc., from NT$78 (US$2.53) to NT$97 and upgraded a recommendation on the stock from a "hold" to a "buy." Hon Hai shares closed at NT$90.00 on the local main board Friday.

Meanwhile, the Mainichi Shimbun in Japan said Friday that Hon Hai and Sharp are working on a plan to set up a joint venture in Zhengzhou, the capital of China's Henan province, to roll out organic light-emitting diode (OLED) screens for smartphones.

The report said that the joint OLED plant aims to compete with their Chinese rivals for orders from Apple Inc. to supply displays for the next generation iPhones expected to hit the market later in the year.

Hon Hai, an assembler of iPhones and iPads for Apple, currently operates a production base in Zhengzhou. The planned OLED plant could take advantage of geographical proximity to secure orders from the U.S. consumer electronics giant, the report said.

The Nikkei Asian Review said that the Zhengzhou plant could cost Hon Hai and Sharp about 100 billion yen to build.

This news comes as international media has reported that Apple has been in talks with BOE Technology Group Co. (京東方), one of the biggest flat panel makers in China, to include the Chinese firm into the supply chain for smartphone screens.

Faced with growing competition from Chinese companies, Hon Hai seems willing to spend to stay competitive and obtain a bigger market share.

(By Jalen Chung and Frances Huang)