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Business deals

Sharp's PC re-entry hinges on parent Foxconn

Company hopes Toshiba unit purchase follows LCD success

Taiwan's Hon Hai Precision Industry, also known as Foxconn, bought Sharp nearly two years ago. The supplier used its network to restore Sharp's liquid crystal television business to profitability.

TOKYO -- Sharp is charting a path aimed at rejuvenating the personal computer business it is buying from Toshiba by employing the production network of Taiwanese parent Hon Hai Precision Industry, better known as Foxconn, in an effort to repeat the revival of its liquid-crystal display operations.

The Japanese electronics maker announced Tuesday that it will pay 4 billion yen ($36.4 million) for an 80.1% stake in Toshiba's PC subsidiary around October, re-entering the market it quit in 2010. The Osaka-based electronics maker will take over Toshiba's PC factory in the Chinese city of Hangzhou as well as related operations in the U.S., Europe and elsewhere.

Toshiba once claimed a world-leading share of the PC market thanks to its Dynabook line, released in 1985 as the first mass-market laptop. But the business has struggled since then, ending fiscal 2017 with sales of 167.3 billion yen and a 9.6 billion yen operating loss.

Sharp will maintain the Dynabook brand after it takes control. It aims to restore profitability by taking advantage of parent Foxconn's overwhelming procurement and production power as the world's largest contract manufacturer. Foxconn, known as an assembler of Apple's iPhone, expanded by snapping up manufacturing facilities from companies such as Dell and Hewlett Packard while simultaneously receiving production orders from them.

More than half of the world's servers are said to be made by Foxconn, which is able to procure parts at a discount due to its scale. The company has also polished its manufacturing technologies thanks to strict cost requests from clients. Sharp hopes to combine its brand and the Dynabook name with Foxconn's global production network to improve profitability.

The precedent for Sharp's strategy is LCD TVs, which helped the company mount its recovery. Fiscal 2017 sales doubled to more than 10 million units as the company tapped into Foxconn's Chinese sales network.

"We were profitable in every region" despite intense price competition, said Kazuhiro Kitamura, head of Sharp's TV systems business.

Sharp also said Tuesday that it will issue a maximum of 200 billion yen in new shares to buy back preferred stock. Main lenders Mizuho Financial Group and Mitsubishi UFJ Financial Group received convertible preferred shares in exchange for a bailout in 2015. Normalizing the company's finances will make it easier to procure funds for future investment. Concerns about dilution sent share prices down by more than 10% Tuesday, but the stock recovered by closing.

Although it is difficult for Japanese electronics makers to take their Asian counterparts head on in cost competitiveness, alliances that leverage the manufacturing ability of these peers could help brands like Sharp and Toshiba regain their sheen.

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