Taiwan-based Foxconn’s $6.2bn bailout of Sharp is first ever foreign takeover of a major Japanese electronics company; move could spell end for troubled Sharp solar business.
Japanese electronics giant Sharp has been acquired today by Taiwan’s Foxconn, in a reported $6.2 billion bailout deal that sees a major Japanese firm fall into the hands of foreign ownership for the first time ever.
The deal with Foxconn Technology Group means that a rival bid by state-backed Innovation Network Corporation of Japan (INCJ) – which would have kept Sharp in Japanese hands – has failed, and the Tawainese firm’s success could spell the end for Sharp’s beleaguered solar business.
Still dominant and profitable in liquid crystal display technology, the $6.2 billion sum was proof of Sharp’s attractiveness as a global conglomerate, but industry watchers believe that Foxconn’s ownership will cast doubt on the future of Sharp’s Energy Solutions division, which posted a negative 42.2% sales decrease in the last quarter.
It had been rumored that, had INCJ’s bid been accepted, the new public-private owners would have integrated Sharp’s solar division with Japanese thin film developer Solar Frontier. However, with Foxconn now at the helm, such sympathy for the struggling solar arm appears less likely.
Media reports in Japan state that the terms of the deal will see Foxconn’s parent, Hon Hai Precision Industry Co., control a 65.9% stake of Sharp, and Ace Research Institute analyst Hideki Yasuda told Bloomberg that this would likely see the company wind down its solar panel business.
“There is no longer merit to keep it under Sharp because it is a business that relies on subsidies,” said Yasuda. “It is a business with big swings dependent on the levels of subsidies and feed-in tariffs.”
In a filing announcing Sharp’s share sale, the company said that it would make the “utmost efforts for options, including a strategic alliance and a joint venture” in order to save its solar business. Such an outcome was likely had INCJ won the bid, but the series of hits delivered to Sharp’s solar sector over the past 18 months looks set to continue, with the Foxconn deal a likely knockout blow.
Takehiro Kawahara of Bloomberg New Energy Finance (BNEF) told pv magazine that Sharp will be unlikely to turn its back completely on solar energy, but that its relationship will evolve to better reflect its strengths in the sector.
“This will likely mean more emphasis on providing integrated solar, energy storage and energy management systems targeted at commercial and residential customers under an OEM label, ie, procuring components from other manufacturers and selling them under the Sharp brand,” Kawahara said. “It will also likely mean divesting from PV manufacturing, particularly shutting down older plants in Japan that are no longer economically viable.”
The analyst added that under this deal, it is very likely that the Sharp brand name for solar modules will survive but all the Sharp factories will close down – the firm has long used Chinese contract manufacturing and might well hand this over to Foxconn. “Sharp could continue the downstream sales and distribution business,” Takehiro said.
Painful solar slump
Things began to turn sour for Sharp’s solar ambitions in 2014 when the firm closed its panel manufacturing facilities in the U.S., the U.K. and Italy, and then in 2015 sold Recurrent Energy – a California-based subsidiary – to China’s Canadian Solar for $265 million.
Despite these blows, Sharp’s head of energy unit, Kazushi Mukai, felt moved to tell reporters during a tour of the company’s solar cell factory in Sakai last March that Sharp would not be selling its loss-making solar business, and had instead laid plans to return it to profitability by the next fiscal year.
The electronic giant’s total financial performance echoed the difficulties faced in the solar market, with the nine months ending December 31, 2015 recording a loss of JPY 106.1 billion ($902.5 million), with net sales down 7.1%. A slump in demand for its smartphone screen technology, allied to painful restructuring costs, served to drag down revenues.
With Foxconn now at the helm, experts expect Sharp to turn its chief focus towards crystal display technology – a sector in which Sharp and Han Hai have worked together successfully in the past. “Sharp is strong in R&D while Hon Hai knows how to market products to customers such as Apple, and it also has expertise in production,” Yukihiko Nakata, technology professor at Risumeikan Asia Pacific University told the Guardian. “Together they can go global,” he added.
Update: change made at 12.15 GMT Hours after the deal announcement was confirmed, Foxconn issued a statement saying that the deal had been delayed while new information from Sharp was pored over.
“We will have to postpone any signing of a definitive agreement until we have arrived at a satisfactory understanding and resolution of the situation,” the Foxconn statement read.