Sharp strikes a deal with Hon Hai

Sharp Industries is in a very bad shape losing billions of dollars last year as its TV and solar panel business floundered in the face of heightened global competition from Korean and Chinese players. The high cost of its domestic manufacturing base and the rising yen led to a massive loss. The company which invested a huge amount into building a state of the art manufacturing facility in Sakai is now facing liquidity issues. Sharp had stuck a deal with Hon Hai, the world’s largest OEM electronics manufacturer and owner of Foxconn for selling a 10% stake in the company for $800 million. However Sharp’s condition has deteriorated even more since then and now Hon Hai is looking to capitalize. The Taiwanese company not only wants a financial stake but also wants a management role in the company which Sharp is loathe to give.

However Sharp’s financial condition is such a mess that it has very little bargaining power and may not only have to sell the stake at a much lower value but also allow Hon Hai management to get board seats in Sharp. Sharp which is Japan’s largest solar panel manufacturer is facing a real fear of failure as its stock price has crashed to a 37 year low and its cash flow position become precarious. Japanese electronic conglomerates like Sony, Sharp, Panasonic have continuously lost marketshare to South Korean and American companies like Samsung and Apple. They have been plodding along with wafer thin margins for a long time, however the last couple of years have been brutal. A strong Yen and competition have forced them into huge losses. In fact Sharp is facing a major equity draw-down because of the huge loss it is making. Sharp has been losing money in its major bread and butter business lines like flat panel displays and solar panels. The company which invested a massive amount of money into building a state of art technology plant in Sakai is having difficulty in funding itself. The company is looking at Foxconn (an OEM supplier) for funds as it continues to lose money. While the other major business groups like Sony too are losing money, Sharp has reached pretty much the end of the tether.

Hon Hai will not only benefit from Sharp’s technology in the LCD business but also could expand its fledgling solar panel business using Sharp’s leading position.

Read About Sharp Solar Panel Review.

Sharp solar factories in Japan no longer competitive

Sharp which has managed till now to survive with its high costs in Japan factories too is now facing the pressure. Japanese market is highly protectionist with majority of the demand going to  Japanese zaibatsus. The Japanese government is helping Solar Companies with subsidies/diplomacy to sell Japanese solar panels in Asia and Africa. Sharp now is being forced to move off the islands of  Japan as the high cost of labor and currency makes it uncompetitive in the fiercely cutthroat solar panel global market. Sharp has a giant thin film silicon factory in Sakai and cell/module operations spread out in Japan. It will now manufacture more of its cells/modules overseas to cut down on the cost which are much higher than the Chinese. Note while Sharp is still a long way in suffering the fate of the likes of Evergreen Solar, there is no doubt that it is under huge pressure. Read my earlier post on Sharp’s position in the solar industry.

Marketwatch

The report came on the same day Sharp said it is looking to revise the financial terms of Hon Hai’s planned acquisition of a 9.9% stake in the company, in a sign that the Japanese company is likely to accept a lower price in exchange for a much-needed lifeline from its Taiwan business partner amid a steep decline in its share price.

Hon Hai, the world’s largest contract electronics manufacturer, also known as Foxconn, agreed in March to take a 9.9% stake in Sharp at 550 yen, or about US$7, a share, for a total of roughly $800 million.

However, the price of Sharp’s shares has since fallen to about one-third of that level.