But Sharp has taken a sharp turn. The Japanese company has lost almost $10 billion over the past four years. Lenders have bailed it out twice in the past three years, including a $1.7 billion infusion of capital in early 2015. The loans have piled on debt to five times greater than the value of its equity.
Sharp’s revenue has tumbled from $36.4 billion in 2011 to $23.3 billion in 2015 (ended March). The company’s bottom line went from a $234 million profit in 2011 to a $1.8 billion loss in 2015. The deepest loss was $5.8 billion in 2013.
Sharp was a pioneer in developing liquid crystal displays (LCDs) for TVs and computers. Along with LG and Samsung, the company supplies displays for Apple products.
Despite what should be a lucrative contract, Sharp has lost LCD market share to competitors in Taiwan and China that undercut its prices. In 2015 Sharp got out of the TV business in the Americas by selling its TV factory in Mexico and the rights to the Sharp name to Hisense Group, a Chinese company.
Now Foxconn, the company that assembles Apple’s iPhones, has bid $5.3 billion to buy Sharp. With Sharp, Foxconn, also known as Hon Hai Precision Industry, would supply a greater share of the parts that make up Apple products and gain other technology to keep its worldwide network of factories running.
Foxconn has made several less than successful runs at buying part or all of Sharp in the past several years. It did score a share of Sharp’s LCD business.
The latest Foxconn proposal has met resistance in Japan, which fears losing Japanese-developed technology to foreign hands. The Innovation Network Corporation of Japan (INCJ), which is backed by the Japanese government, has proposed a $2.5 billion investment to revive Sharp.
Whether it’s Foxconn or INCJ that gets the task, there’s work to do to turn Sharp around.
Sharp has tried to reduce costs to match its revenue but has been unable to maintain pace. It cut its workforce in Japan by about 3,500 through voluntary early retirement. It also has cut jobs in its international operations, reducing the overall workforce 10%. It also is cutting its fixed costs. The company even sold its headquarters building in Osaka, Japan.
In 2015 Sharp streamlined its operations into five businesses: Consumer Electronics, Energy Solutions, Business Solutions, Electronic Components and Devices, and Displays. Top executives pledged to turn over the reins of each business to their leaders and hold them responsible for each unit’s fortunes.
Whether it was intended, the reorganization of the business units wrapped them in separate packages that could be more attractive to prospective buyers.
But Foxconn wants the whole thing.
Foxconn already gets 54% of its revenue from making Apple devices, and adding Sharp’s displays would add to that share. At the same time, it would increase Foxconn’s reliance on Apple. Foxconn’s next-largest customer generates about 8% of revenue. Its other customers include Lenovo, Xiaomi, Microsoft, and Amazon.
Besides its investment in Sharp displays, Foxconn also owns 8% of GoPro, the company that makes wearable video cameras. That’s another product line for Sharp displays.
Foxconn has received a lot of publicity for its factories in China (much of it negative attention related to working conditions), but it operates facilities in a dozen or so countries around the world. The company also has factories in Taiwan (where it’s headquartered), Brazil, Ireland, Mexico, Russia, and Slovakia. It also is ready to invest billions of dollars to build factories in India.
As owner of Sharp, Foxconn could cuts costs quickly by shifting production of Sharp products to its lower-cost manufacturing facilities.
With an eye toward the longer term, Foxconn could use Sharp’s technology portfolio as a resource for making its own products. Foxconn and other companies best known for assembling products for other companies have been inching toward becoming competitors as well as suppliers to companies such as Apple. Foxconn already makes a lower-priced smartphone for sale in China.
Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.