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EPTE Newsletter: Hon Hai Completes Sharp Acquisition

Sharp Corporation was once a leading electronics company in Japan. In 1962, Sharp expanded outside of Japan and established Sharp Electronics Corporation in the United States. Sharp was known for cutting edge technology and developed many unique products for consumer electronics, including calculators, photovoltaic cells, LCD panels, LCD TVs, electronic notebooks and more. Sharp created new markets from their 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. Then Sharp decided to invest a huge amount of capital into the LCD TV boom, and expanded their 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. They 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 they were bleeding so badly and they wanted to avoid filing for bankruptcy, so they decided to find a white knight—a friendly investor that would acquire them. Sharp proposed a deal with the Japanese government, who in turn asked for public funds and solicited help from banks. The government and banking executives knew that 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, 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 has a reliable source of flat panel displays. The company will invest to change the current LCD plant to an 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 circuit board suppliers. As the 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. 

Headlines of the week

1. Tokyo University (Japan) 8/29

Has discovered a new conductive liquid. It could be valuable to make high-efficiency lithium ion battery with low cost.

2. Canon (Major electronics company in Japan) 8/31

Has developed a new CMOS sensor with global shutter to have wide dynamic range.

3. Sony (Major electronics company in Japan)  8/25

Has commercialized a new SSD device with high reliability and large memory capacity up to 960 GB for industry use.

4. Sumitomo Electric (Major cable manufacturer in Japan) 9/6

Has agreed to acquire Keystone Powdered Metal Company in the U.S. to expand sintering business in the automobile industry in North America.

5. Shimadzu (Major manufacturer of analytical equipment) 9/1

Has rolled out a new scanning prove microscope that makes the image five times faster.

6. Renesas (Major semiconductor manufacturer in Japan) 9/1

Has agreed with TSMC in Taiwan on cooperation to develop 28 nm microprocessor of the next generation automobiles.

7. Panasonic (Major electronics company in Japan) 9/1

Has commercialized a new photo coupler for high-speed telecommunication of industrial equipment.

8. TDK (Major device manufacturer in Japan) 9/2

Has founded a new joint venture with Toshiba for the business of new inverters of electric vehicles.

9. Toyota Motors (Major automobile company in Japan) 9/12

Has built a “zero-emission building” combining hydrogen base fuel cell generator and photovoltaic cells.

10. AIST (Major R&D organization in Japan) 9/12

Has developed a new high-resolution, thick-film printing process with high aspect ratio that combines screen-printing and nano in print technology.

11. DNP (Major printing company in Japan) 9/13

Has developed a new seamless template generation technology for large scale nano in print process.

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