What Display Daily thinks: Seeing as it is an election year, it seems like a good time to double down on yesterday’s story about Sharp getting out of the display business.
The company is a subsidiary of Taiwan’s Hon Hai Precision Industry, also known as Foxconn, the world’s largest contract electronics maker.
“We are in a downward spiral … We can’t invest enough on our promising brand business [including consumer electronics], because Sharp’s ability to generate cash is not improving,” President and CEO Wu Po-hsuan said in an online press conference.
Nikkei
Granted, mea culpa, I did say display business and Nikkei, reporting on the story, said TV display production. I will get to that bit of clickbait-iness in due time, but there was also a method to it – beyond the clickbait-iness. But, let’s go back to 2016 when Foxconn bought a majority stake in Sharp.
The New York Times wrote it up as Foxconn, the Taiwan-based factory operator known for assembling Apple’s iPhones, acquiring a 66% stake in Japanese screen maker Sharp for $3.5 billion, with the aims to make Foxconn a more attractive partner for Apple, as Sharp supplies about 25% of iPhone displays. The Japanese press had their own take and there was much hand wringing over Sharp needing to be bailed out. At that time, Sharp’s problems were big, really big.
The acquisition followed months of negotiations and came at a $2 billion discount due to Sharp’s liabilities. Despite the challenges of turning around Sharp’s ailing business, Foxconn saw the deal as essential to maintaining its position in the industry amid rising labor costs in China and a slowdown in the global smartphone market. The move was part of Foxconn’s broader strategy to control more of the supply chain and diversify its business into higher-end manufacturing and new technologies.
That was eight years ago – here comes the double down – Sharp isn’t able to stay in the display business because Sharp ain’t Sharp and Foxconn is Sharp, and that’s the way it goes. Foxconn went through the wringer on this deal back in 2016. That $2 billion discount caught the Foxconn negotiating team by surprise. The whole deal was unusual for the Japanese company and it was out of the norm for Foxconn.
And, yes, there was always going to be a sense of a culture clash between the two companies, and I am not talking about the obvious one between Chinese and Japanese corporate culture. That’s a given. But, Foxconn is a down and dirty contract manufacturer. There are no niceties, just suicide nets around the factories. Sharp is a notable, almost iconic, brand from a time when Japanese companies were dominant in consumer electronics. Sharp has a lot of IP. Tons of it. Foxconn has processes, cost cutting, efficiencies, and ruthless focus.
So, at a point when Sharp is going to, arguably, the most important display industry event on the calendar, Foxconn drops a bombshell. Okay, TVs are not profitable. Sounds fair enough. But, that’s not the tone or approach here. It wasn’t a strategic shift that could be lauded at Display Week. I mean, they used the term AI. That’s a damning strategy right there.
It makes you think, what is the Sharp brand and IP worth to a Foxconn in IT monitors, mobile, and automotive? Maybe something if Foxconn is going to contract manufacture any of those products for a third party, but how is that going to work against the overwhelming competition from the same people that just hammered the nails into the coffin of Sharp’s TV business? I mean, what is the IP leverage that Foxconn, the contract manufacturer, have with Sharp? How does that jibe with competition from BOE, TCL CSOT, LG etc etc?
Even assuming that Foxconn can leverage Sharp’s remaining display products, whatever they may be, it is not Sharp anymore. This is Foxconn. Sharp is going to be a historical footnote in the annals of the display industry. It may linger in some shape or form as a brand, but it’s done as a display business, if not as a front for whatever Foxconn thinks it may be.
We can list at all the other reasons why Sharp is done as a display business here:
- Multi-billion dollar M&A deals tend to dissolve when the smaller partner shrinks even more and loses its accretive value.
- You can have all the technology in the world, but automotive supply chains are a huge commitment, and it is still not clear how the market is going to shake out for all the investments being made by the existing display powerhouses. It’s not a business for the feint of heart or a company that is bleeding money for its parent company.
- Sharp mobile has about as much change against rising Chinese brands as Sharp’s LCD TV business did.
- IT monitor markets are fragmented, highly competitive, and frankly, the big business is in mass market appeal. The OEM market is no different than the mobile with even less margin for experimentation or investment. Does HP or Dell really want to risk any investment in display technology that doesn’t have solid footing and backing at the source? Add Lenovo, Acer and any other number of IT computing brands.
- Forget Apple. That’s never going to happen.
- Japan? Sure, why not carve out any indigenous value and sell it off for parts to a local interested party.
This is not a reflection of the intrinsic value of Sharp but the company needed a deep pocketed savior, Foxconn stepped up, and it hasn’t worked out. It is very unlikely that after eight years it is going to get any better than this.
I am a cynic when it comes to public pronouncements. The timing of the TV display production closure was suspect. The protestations of that being the only display segment that Sharp is losing, weak.
This is Foxconn making the most of its ownership of Sharp, using what it has paid for and invested in to create a face-saving forward-looking plan, but this is not Sharp, the display industry stalwart. That chapter is finished. Again, maybe the brand isn’t but I am not writing any future chapters on the Sharp brand, and we’ll have to wait and see who actually does write them.
