Japan electronics maker Sharp is currently having a tough time. And in an effort to turn the corner, it has just announced in a press statement that it has entered a strategic global alliance with the Hon Hai Group. New shares will be issued to the Hon Hai Group (which trades under the Foxconn name).
Severe market conditions, rapid price erosion, and tough competition are some of the reasons cited for this partnership. Sharp has forecast a net loss of 290 billion yen (US$3.5 billion) for the year ending 31 March. According to the BBC News, Sharp will sell a 9.9% stake (about 121.65 million new shares) to the Hon Hai Group for 66.9 billion yen (US$807 million). This will make Hon Hai Sharp’s largest shareholder.
In addition, Hon Hai will procure up to 50% of LCD panels and modules manufactured by Sharp Display Products (SDP), which is a joint venture between Sharp and Sony. Along with the partnership, Hon Hai and its founder Terry Gou will control a 46.5% stake of SDP. This stake is said to cost 66 billion yen (US$796 million). In other words, the total scale of the cooperation will hit about 133 billion yen (US$1.6 billion).
According to a New York Times report, Sharp's incoming president, Takashi Okuda, has said that Sharp would use the proceeds of the share issue to invest in new LCD technologies, where demand is expected to come from mobile devices. Both companies will also jointly develop and make devices such as smartphones.
And Hon Hai’s chairman, Terry Gou, had this to say about the alliance:
“Sharp is one of the most recognized brands worldwide and is also the leader in R.&D.,” said Hon Hai’s chairman, Terry Gou, who addressed reporters in Tokyo in a video message. “Hon Hai — well, it’s not a brand, but has an excellent manufacturing record.”
“This is truly a winning alliance,” Mr. Gou said.