Sharp was a leading electronics company in Japan.
In 1962, Sharp expanded outside of Japan and established Sharp Electronics Corp. in the US. Sharp was known for cutting-edge technology and developed many unique products for consumer electronics. The list of products includes calculators, photovoltaic cells, LCD panels, LCD TVs, electronic notebook and more. Sharp created new markets from its innovative products, and remained the industry leader throughout the '80s and '90s. Profits were high, shareholders were happy, and the well-oiled machine remained humming. Sharp decided to invest a huge amount of capital into the LCD TV boom, and expanded its manufacturing capacity.
The electronics market went through significant changes after 2001. The global market for consumer electronics continued to grow, but consumers were buying not just flat panel TVs. The Millennial generation needed faster, smaller, sometimes bigger, but always new and improved. These new and improved consumer products included smartphones, thinner TVs, digital security cameras, smart watches and wireless sound systems. Flat panel TV sales were still robust, so Sharp invested heavily in LCD panel manufacturing plants. It built a large LCD panel plant in Sakai, Osaka at a cost of almost $10 billion. Unfortunately, LCD manufacturers from Korea and Taiwan grew to become significant competition. Prices dropped, consumers were feeling the pinch from the 2008 global financial crisis and Sharp lost market share. The new Sakai plant had no chance to operate at full capacity.
Sharp struggled financially for the next couple of years. There was not time to restructure because it was bleeding so badly and wanted to avoid filing for bankruptcy, so it decided to find a white knight – a friendly investor that would acquire it. Sharp proposed a deal with the Japanese government, which in turn asked for public funds and solicited help from banks. The government and banking executives knew Sharp’s survival was critical for the Japanese economy. Unfortunately, no financial help was available in Japan.
Fortunately for Sharp, a white knight appeared from Taiwan. Hon Hai Precision (Foxconn), the largest EMS company in the consumer electronics industry, proposed an acquisition that would have Sharp become one of the Hon Hai’s subsidiaries. This was the first time in Japan that a major electronics company was acquired by a foreign company. The new president of Sharp was from Hon Hai, along with several new directors.
Is Hon Hai a real white knight for Sharp? Well, let’s look at the benefits for Hon Hai. A key strategy for EMS companies is to have their own brand name. Having a brand name will provide increased assembling jobs for the EMS company. Hon Hai had a reliable source of flat panel displays. The company will invest to change the current LCD plant to OLED plant.
Sharp’s high manufacturing cost is a problem. I believe Hon Hai will shift some manufacturing from Japan to China. This will affect the supply chain in Japan, especially for circuit board suppliers. As a result of the acquisition, Hon Hai will continue to grow and will be considered a significant manufacturing company. The Sharp name will remain, but there will be a change in culture for the company.
DKN Research, www.dknresearchllc.com
DKN Research Newsletter #1626, September 18, 2016 (English Edition) (Micro Electronics & Packaging)
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