Hon Hai Chairman Terry Gou has given assurances that his company will protect Japanese jobs at Sharp. But the Osaka-based electronics group's own hand is being forced by a deeper-than-expected earnings slump.
Sharp shed about 3,000 workers through a 2012 early retirement offer after hefty investments in liquid crystal display production backfired. The company cut an additional 3,200 or so jobs last year as its financial troubles returned with a vengeance.
As of March 31, Sharp and its subsidiaries employed slightly fewer than 20,000 people in Japan, two-thirds from four years ago. Sharp's own payroll has fallen below 15,000 employees.
The company is now weighing the scale, method and other aspects of a new round of job cuts. Previous early retirement offers were based on employees' age. This time, Sharp may focus its downsizing on underperforming businesses or factories. Possibilities are thought to include solar power equipment and storage batteries.
As of October, Sharp had expected to earn a group operating profit of 10 billion yen ($89.9 million) in the year through March 31. But as the fiscal year came to an end, it slashed its forecast to a 170 billion yen loss. Like Sharp, Hon Hai appears to see the need for immediate restructuring to stop the bleeding.
Sharp's mainstay LCD business continues to suffer from shrinking demand as Apple and other manufacturers throttle down production. Going under Hon Hai ownership is unlikely to produce a significant improvement in earnings in the short term. Sharp may make cutbacks to underperforming businesses themselves in addition to labor and other fixed costs. Gou suggested in February that spinning off the money-losing solar business was a possibility.
Hon Hai, also known as Foxconn, is to invest 388.8 billion yen in Sharp under an agreement signed April 2. The Taiwanese company has already made a 100 billion yen deposit on the deal. It would own 66% of Sharp's voting shares after completing its investment, which has a deadline of Oct. 5.
For Sharp, stopping its brightest employees from quitting on their own accord poses a challenge as it rushes to downsize. Engineers are already bolting the LCD business to join rival companies, and it is unclear whether this loss of talent will stop under Hon Hai ownership.