Well, is the Sharp deal on or off? That was the question that I was pondering last night as I returned from MWC and the Electronic Display/Embedded World event in Nuremberg. As I write, although Sharp seemed to have agreed to a deal, some late information had come into play with notes about liabilities being sent by Sharp to Foxconn by courier. How quaint and old-fashioned!
I’m finding it hard to work out the deal. As I said a couple of weeks ago, some reasons for the appeal of the deal are clear. Sharp’s management avoids falling into the abyss or being foisted onto a somewhat reluctant JDI and subsumed into a national champion brand. It does occur to me that Sharp has never recovered from the shock when the end of a special subsidy for TV sales, the completion of the Japanese analogue TV switch off (which had encouraged many buyers to trade in their old TVs, and the effects of the tsunami and Fukushima disaster really hit the Japanese TV market extremely hard in 2011. For a company that relied so much (and was so successful with around 40% market share) in its home LCD TV market, this was a blow that, arguably, it has never really recovered from.
The big question is really what Foxconn really wants from Sharp. There is the obvious appeal of gaining Sharp’s remaining panel business and the Sakai fab that would add to the scale of the Innolux panel business that the firm owns. I have said before that simply adding two old fabs together rarely is useful, but in this case, Foxconn would be gaining one of the best of current fabs in the form of the Sakai G10 plant. It would certainly help the InFocus business that Foxconn has an investment in and is developing as a B2C brand to have a fully vertically-integrated supply chain. Adding Sharp to that brand, with both companies able to offer big displays would make some sense, and it seems a reasonable bet that Foxconn could make some cost savings (although Sharp is not notoriously profligate or wasteful).
Would Foxconn want to pull back the Sharp branding deals when the current contracts expire, or would it use ownership of the brand name to help it ensure that the companies using the brand, Best Buy in the US and UMC (TVs) and Vestel (white goods) in Europe, bought more of its product from Foxconn. With Best Buy, this kind of pressure would make much sense, but why would UMC want to buy from the firm?
In Europe, at least, Sharp has significant business in printers and point of sales and I must admit that I know little of what Foxconn might want to do with that business, although I suspect that it would be happy to keep on with it as it seems to have a strong position and channel.
In the longer term, the question is whether Foxconn has, or can attract, and retain, those that can manage and develop a premium brand and innovate with that brand in a way to keep it premium. So far, there is little evidence that its culture can do this. Foxconn/HonHai has done incredibly well in making things, cheaply, but has shown little ability to build up its own company brand. This reflects a weakness in really high quality marketing that is not uncommon in companies from China and Taiwan, in particular. That these cultures can sell, there is no doubt, and they can spend money on marketing activities (at least a few can), but they rarely seem to have the genuine and sophisticated grasp of marketing as the core activity of a brand, especially one from the US or from some parts of Europe.
If I was a Sharp shareholder, I’d take the Foxconn money, but I don’t think I’d re-invest it with Foxconn.
(of course, having written this article on the plane on the way home on Thursday night, I’m sure that something will happen on Friday morning to cause further confusion!)
Bob
