TAOYUAN, Taiwan -- Foxconn Technology Group is seeking to take over embattled Japanese conglomerate Sharp Corporation because the iPhone assembler needs Sharp's advanced display technology for its new panel plants in China, said David Hsieh, a senior director at research firm IHS DisplaySearch.
But Tokyo-backed investment fund Innovation Network Corporation of Japan, which is vying with Foxconn for control of Sharp, might use this a key argument for keeping the electronics maker in Japan and preventing its technology from being leaked to Chinese competitors.
"With Foxconn getting subsidies from the Zhengzhou and Guizhou governments for building its panel facilities there, INCJ may raise concerns to the Japanese government that Foxconn is actually getting funds from China for its Sharp bid," Hsieh told the Nikkei Asian Review on Friday.
Foxconn, known formally as Hon Hai Precision Industry, signed an agreement with local officials in Zhengzhou in central China last November to build a facility to make small and medium-sized panels for smartphones and other gadgets. The plant is expected to begin mass production in 2018.
In December, a similar facility, which had received investments from both Taiwan-based Foxconn and authorities in Guizhou in southwestern China, began construction. It is slated to begin production in late 2017.
Both facilities are expected to churn out liquid crystal display (LCD) panels using advanced low-temperature polysilicon (LTPS) technology, which offers higher resolution and brighter color on lower energy consumption compared to traditional thin-film transistor (TFT) LCDs.
LTPS is used in Apple's popular iPhones, and Sharp is one of the panel suppliers for the U.S. titan. However, there has been speculation that Apple wants to gradually shift to active-matrix organic light-emitting diode (AMOLED) technology, an advanced display system owned by South Korea's Samsung Electronics and LG Display. To produce AMOLED panels, a manufacturer first needs to acquire superior LTPS technology, according to Hsieh, due to the fact that AMOLED production still requires LTPS elements.
"Foxconn-controlled panel maker Innolux lacks superior LTPS technology. It would be a disaster for Foxconn to build those two new LTPS facilities in China together with another one in southern Taiwan without matching technology," Hsieh said.
"So that is why Foxconn is offering a hefty 700 billion yen ($6.2 billion) for Sharp. It needs Sharp's LTPS technology," he said.
However, INCJ has not given up on Sharp. Despite its seemingly inferior 300 billion yen bid, INCJ's Chairman and Chief Executive Toshiyuki Shiga said in Tokyo on Friday that his fund's offer is better for Sharp's shareholders, staff, customers and the Japanese economy. Shiga added he wants to merge Sharp's display business with Japan Display Inc, in which INCJ holds a controlling stake.
Sharp is expected to hold a board meeting weighing both bids on Feb. 24.
Hsieh said that INCJ may come under bigger pressure if it loses out on Sharp to Foxconn and is left with only JDI, because the latter would then become "the last samurai," facing strong competition from Chinese and South Korean players.
Combining Sharp and JDI, on the other hand, makes a lot of sense for INCJ -- combined they would become the global leader in LTPS, smartphone panels, automobile panels, and small- and medium-sized panels.