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Talk of the Day -- Hon Hai-Sharp-Apple tie-up to battle Korean rivals

2012/03/28 22:59:55

Taiwan's Hon Hai Precision Industry Co. is to invest US$1.6 billion in the Japanese electronics maker Sharp Corp., in the first major foreign investment in a Japanese technology company in history.

The investment will make Hon Hai -- the parent company of Foxconn Technology Group, which builds cool high-end gadgets for Apple Inc. -- Sharp's biggest shareholder, with a 9.9 percent stake.

The two corporations have also struck a deal to overhaul Sharp's division that makes LCD panels for televisions, which is a core business largely responsible for the huge losses the Japanese firm expects to incur in the fiscal year ending March 31.

Market mavens said the Hon Hai-Sharp tie-up marks a step toward their alliance with Apple to take on South Korean rivals, Samsung Electronics Corp. in particular.

The following are excerpts from the local media coverage of the new capital and business partnership:

United Evening News:

Sharp's decision to sell a nearly 10 percent stake to Hon Hai marks a recognition of the value of Taiwan's contract manufacturing industry. It also marks the first time Japan's technology sector has opened its doors to a major foreign investor.

According to some industry analysts, the deal highlights the rapid rise of Hon Hai, the world's largest contract electronics maker, which has an annual revenue that now dwarfs Sharp's (US$36.49 billion vs. US$117 billion) despite being more than 60 years younger.

Japanese media reports said competitive pressure from Samsung has helped prompt the Hon Hai-Sharp cooperative deal. Sharp needs capital and export outlets while Hon Hai has deep pockets and needs raw materials and technological know-how.

As a world-renowned brand, Sharp possesses a number of advanced technologies, including IPS monitor used by Apple's newest iMacs. It also has other cutting-edge flat-screen technologies that could help strengthen Hon Hai's Apple supply chain, industry watchers said.

Apple orders now account for 45 percent of Hon Hai's revenues. The new partnership with Sharp will contribute to Hon Hai's efforts to become Apple's partner in producing its next star device iTV as Sharp is one of the few companies that can provide large-size LCD panels using 10th-generation technology, industry sources said.

While Hon Hai has become Sharp's largest shareholder, its founder and chairman Terry Gou has decided not to obtain any seat on the Japanese firm's board of directors. The decision symbolized that Hon Hai's capital infusion is more like a dowry rather than a chain to restrain Sharp.

Describing the partnership as a marriage of genuine convenience for both Sharp and Hon Hai, some Japanese market analysts said the tie-up has set a new model for cooperation between Taiwanese and Japanese companies. (March 28, 2012).

Commercial Times:

Local financial analysts said the Hon Hai-Sharp deal could reinforce the hands of both companies in dealing with Apple -- to which both are suppliers -- in competition with industry leader Samsung Electronics.

Daniel Chang, director of Macquarie Securities Taiwan research division, said he did not think the tie-up as a wise deal for Hon Hai.

"Investing in LCD industry is risky and Sharp is mired in debts," Chang said, adding that Gou's decision to acquire Sharp stakes should reflect his confidence in securing Apple's iTV orders. Apple reportedly plans to launch its iTV later this year.

Other industry pundits said the new deal could be both a challenge and an opportunity. It remains to be seen how Gou would use the new partnership to help struggling Sharp and Hong Hai's own money-losing LCD unit, Chi Mei Innolux, create new growth momentum, they added. (March 28, 2012).

(By Sofia Wu)