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Foxconn offers to buy Sharp's LCD business

OSAKA -- Electronics assembler Hon Hai Precision Industry has proposed acquiring Sharp's LCD business, sources said Sunday, giving the troubled Japanese company an opportunity to offload operations carrying a heavy downside risk.

     Taiwan's Hon Hai, better known as Foxconn, has been in talks with the electronics giant since summer. The proposal would have it take a majority stake in a liquid crystal display company spun off by Sharp, with Apple also making an investment.

     Foxconn also hopes to buy Sharp's roughly 38% interest in Sakai Display Products, a maker of LCD panels for televisions jointly run by the two companies.

     Sharp's LCD business logged consolidated sales of 907.1 billion yen ($7.5 billion) and operating profit of 30.1 billion yen in fiscal 2014. But it moved into the red in the April-June quarter, with an operating loss of 13.7 billion yen. Foxconn's proposal would limit Sharp's risk while enabling it stay involved in the business.

     The deal could also enable Sharp to retain its Japanese staff, since laying off some of the roughly 4,600 employees at domestic production bases would be detrimental to the business by eroding morale among engineers.

     Apple funded half of Sharp's 100 billion yen or so in smartphone-related capital spending in 2012, and its own procurement could be affected by the fate of Sharp's LCD business.

     Sharp is discussing a tie-up with the public-private Innovation Network Corp. of Japan, the top shareholder of Japan Display, a rival in the LCD industry. Apple might agree to the Hon Hai deal to prevent a merger involving Japan Display and Sharp's business, which would reduce the U.S. company's supplier options and make controlling costs more difficult. At the same time, a marriage between Sharp and Japan Display could prevent key technology from being handed over to an overseas company.

    The key issue is the value of Sharp's LCD business. Spin-off talks with two major lenders this spring put its value around 300 billion yen. Sharp's mainstay small and midsize LCD panels for smartphones have fared poorly amid falling prices in China. If Sharp does not reach an agreement soon, the business could fetch a lower price, a finance source said.

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