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Hon Hai to take control of Sharp LCD venture

Nearly $450m investment will make Taiwanese giant majority shareholder

Hon Hai's stake in Sakai Display Products will rise to 53%.

TAIPEI/OSAKA -- Hon Hai Precision Industry plans to turn an LCD screen joint venture with Sharp into a subsidiary, investing a total of 52.1 billion yen ($447 million) as it seeks further inroads in the field with Sharp's know-how.

Parties including Taiwan's Ministry of Economic Affairs had revealed the plans by Thursday. Hon Hai subsidiary Sharp will sell 436,000 shares in Sakai Display Products for 17.1 billion yen to an investment company owned by Hon Hai chief Terry Gou. Sharp's stake will decline from around 40% to just over 26%. Hon Hai, also known as Foxconn, will have a 53% interest.

Gou's company will also invest an additional 34.9 billion yen in Sakai Display. The money will go toward lifting production and sales at the liquid crystal display company, according to the ministry.

The funds will be provided indirectly by a company owned by Gou's son. Gou turned Hon Hai into the world's largest contract electronics maker in one generation. He tends to draw the necessary funds for deals hitting close to home not from Taiwan-listed Hon Hai, but from his family's own pockets.

Sakai Display has been mired in red ink as intense competition with Chinese and South Korean rivals drives prices down. For struggling Sharp, a lower stake will mean less of an impact on its overall earnings. It could also log 234 million yen in extraordinary profit for the current fiscal year ending March from the stock sale. But Hon Hai likely was not so much aiming to help Sharp as wanting to ramp up its own efforts in the LCD business.

Sakai Display plans to stop supplying large LCD panels to Samsung Electronics, its biggest customer, and such other outside clients as China's Hisense group by the end of 2017. It will focus resources on making screens for Sharp, which is working to bolster sales.

The display panel market is looking up, with demand for large TVs rising in China and emerging Southeast Asian economies. "Supply won't be able to keep up with growing demand, particularly for screens 60 inches and up, and prices will continue rising in 2017," a Taiwan-based analyst said.

Taiwanese panel makers, which once stood in the shadows of Chinese and South Korean competitors, are also recovering. Innolux, a company under Hon Hai's umbrella, saw monthly sales increase on the year for the first time in 21 months this November, by 14.5%. Hon Hai hopes to ride this wave to put Sharp's TV business back on track. Sharp announced plans in September to double TV unit sales to 10 million in fiscal 2018.

Hon Hai and Sharp are expected to sign an agreement soon with local authorities in China's Guangzhou Province for the construction of one of the world's largest LCD factories. But they risk driving prices down if they raise output too high. They are working to develop Sharp's know-how and brand image in order to succeed in the competitive market.

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