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Sharp sees 170bn yen loss ahead of Foxconn takeover

OSAKA -- Sharp anticipates a 170 billion yen ($1.51 billion) operating loss for the year ending Thursday, underscoring the difficulty the company will face in rebuilding core display operations under Taiwan's Hon Hai Precision Industry, or Foxconn.

     The Japanese electronics maker initially forecast group operating profit of 80 billion yen for fiscal 2015, a vast improvement from fiscal 2014's 48 billion yen loss. That forecast was downgraded to 10 billion yen last October. Large contingent liabilities revealed in February during acquisition talks with Foxconn prompted the Taiwanese company to demand that further valuation losses on inventory and other expenses be booked, leading to another 180 billion yen downgrade.

     Foxconn, the world's largest contract manufacturer for cellphones and other electronics, is itself growing more slowly due to increased competition and rising personnel costs in China.

     Group operating profit in the year ended December 2015 grew 15% to 164.2 billion New Taiwan dollars ($5.08 billion), while sales rose 6% to NT$4.48 trillion, the company said Wednesday. But profit for the October-December quarter alone fell 14% from the year-earlier level to NT$54.3 billion. Sales dropped 5% to NT$1.42 trillion. Orders from Apple have been sliding since December in light of slowing smartphone sales.

     Foxconn is betting on Sharp's technology to produce high-quality liquid crystal display panels for Apple and major Chinese smartphone makers. Sharp's operations developing next-generation OLED panels, which Apple will incorporate into new iPhones, are set to receive 200 billion yen ($1.77 billion) in growth investment.

     Yet South Korean rivals such as Samsung Electronics have a significant lead in the OLED field. Sharp's management insists the company has the technology to produce the panels. But a freeze on development spending due to sagging earnings over the past several years has kept the company from amassing the technology and expertise required for mass production.

     In a message to employees Wednesday, Sharp President Kozo Takahashi called the company's acquisition by Foxconn the birth of an international alliance between two electronics-sector giants and a major turning point in industry history. Whether that turn is for the better or for the worse rests on how effectively Sharp can reconstruct its core display business with Foxconn funds.


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