Sharp’s choice of Hon Hai ends months of speculation and offers clear benefits in terms of a cash injection. But question marks hang over what will happen to Sharp’s workforce and management as the Taiwanese giant sets about turning around the firm.
The cash infusion will be massive, and analysts agree on the benefits of that. They also point to synergies Sharp will have with the Hon Hai group.
“As for the capital offer, Hon Hai’s plan has an edge over INCJ’s, so I think it’s a plus for Sharp,” said Toshiro Sato, an analyst at Kyokuto Research Institute. Hon Hai’s ¥660 billion bid far overshadowed INCJ’s ¥300 billion offer.
However, the analysts noted concerns about the fate of Sharp’s current management team and how Hon Hai will tackle job cuts to facilitate structural reform.
Moreover, they said INCJ’s vision of a restructuring in Japan’s electronics industry seems unlikely to come about.
Sato said that as Hon Hai is helmed by a strong owner, Terry Gou, management decisions are likely to come more quickly, compared with the protracted and opaque decision-making processes of state-backed INCJ.
Another analyst who wished to remain anonymous said Hon Hai’s capital is critical for Sharp, whose core business is LCD panels, as such components require continuous investment.
“Sharp will be able to secure development capital to reconstruct the LCD business,” the analyst said. “The situation will be an improvement on now.”
On top of the financial boost, becoming a Hon Hai group firm will help Sharp to sell LCD panels to Apple Inc., as Hon Hai manufactures the iPhone — for which Sharp currently provides the screens.
Sharp may be able to improve its bargaining position with Apple, the analyst said, adding that Hon Hai’s position vis-a-vis Apple would also be strengthened.
Foxconn is the world’s biggest contract manufacturer of electronics and produces a variety of products under clients’ brands.
Sato of Kyokuto Research also said Hon Hai will be able to adapt to its customers’ needs more quickly with Sharp’s LCD technology.
Moreover, Sharp could use Foxconn’s manufacturing know-how to assemble its own products for less, said the analyst who asked for anonymity.
Although Sharp is sure to get some help for reconstruction from Hon Hai, both analysts pointed out potential problems, including the future of the current management team and the issue of job cuts.
Headed by President Kozo Takahashi, Sharp’s management line-up is expected to remain in place for now. The team has overseen efforts to turn the company around since 2013.
While the tech giant posted a profit in fiscal 2013, Sharp posted a massive net loss of ¥222 billion in fiscal 2014.
The team came up with a new three-year midterm plan last year, but that is already looking shaky and the firm is expected to fall short of its year-one goal.
Some, including Sharp shareholders, have voiced doubt over the capability of the current management.
“I think it’s unrealistic that the current management team will stay,” said Sato.
He added, Sharp may have made requests to Hon Hai that will become obstacles to an efficient turnaround. Sharp asked Hon Hai to retain as many jobs as possible and to keep its business entities intact, despite the view of many experts that job cuts are unavoidable if the firm is to survive.
“Sharp may get lots of cash, but the structural reform might not go smoothly” if the current management stays and Hon Hai cannot cut jobs, Sato said.
Unlike Hon Hai, INCJ was planning to spin off Sharp’s businesses and spark a revamp of Japan’s electronics industry.
The state-backed fund was apparently planning to merge Sharp’s LCD business with Japan Display Inc., and to combine the white goods segments of Sharp, Toshiba and Hitachi, reflecting the government’s hope of strengthening an industry crowded with domestic competitors.
“The plan was a bit too ambitious, but if it had worked out the industry would have been restructured, and that would have been a plus for Japan in the long term,” Sato said.