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Sharp holds key to Foxconn's restructuring

Taiwanese contract manufacturer set to reboot in Shenzhen

Foxconn Chairman Terry Gou was seen in Taipei on Jan. 22.

OSAKA/TAIPEI -- The spoiled child, as Tai Jeng-wu once called Sharp before taking over the ailing electronics maker as president, is starting to act more like its new daddy, Hon Hai Precision Industry, better known as Foxconn. And the kid now holds the key to the future of the Taiwanese tech giant.

"They come with Sharp employees to meet us and haggle aggressively," said a representative of a company that sells manufacturing devices to Sharp, sighing. After taking over Sharp, Foxconn has not only sent Tai and other executives but an army of its employees to keep a tight watch on Sharp's every move, including its procurement procedures.

Thanks to improved contract terms and cost cuts, Sharp likely made its first quarterly profit on a consolidated basis in the October-December period -- after bleeding red ink for eight straight quarters.

"If the Innovation Network Corp. of Japan (a public-private entity) had beaten Foxconn to acquire Sharp, things wouldn't have improved this fast," a Sharp employee said.

At a press conference in Taipei on Sunday, Foxconn Chairman Terry Gou boasted about Sharp's improved financial results and reiterated that the purpose of the takeover is vertical integration.

Gou has asked Sharp to increase the number of new products and strengthen its brand. He hopes that accomplishing these goals, coupled with Foxconn's cost competitiveness and finances, will lead to something like South Korea's Samsung Electronics.

That is what he means by vertical integration.

With Foxconn's growth as a contract electronics assembler now reaching its limit, the key to a structural overhaul is Sharp.

One of the earliest fruits of the integration could become visible in Shenzhen. On Jan. 19, Sharp opened a research and development center for home appliances in the southern Chinese city.

Shenzhen is Foxconn's main production base, and the company plans to further strengthen functions there to help develop products for its major clients, including Apple. The new Sharp center will be an addition to Foxconn's already sprawling Shenzhen ecosystem.

Just as Foxconn emerged as a contract manufacturer in the city, the "second foundation" of a company, as Gou calls it, will also start there.

Sharp's founding family was invited to a year-end party in Taipei on Sunday, ahead of the string of Chinese New Year holidays that begins Friday. "I would like to pay my respects to [Sharp] founder Tokuji Hayakawa," Gou said during the event, praising Sharp's history of technological innovation.

Sharp invented mechanical pencils and liquid crystal display televisions.

"The company is changing," a Sharp employee said, fretting, "but I can't see what it will look like in five or 10 years."

While Sharp as a business has been regaining strength under Foxconn's wing, it will take a while for its employees to regain their confidence.

"It would be ideal if Sharp became an obedient Apple," a Foxconn representative said. But simply having the Foxconn way imposed on it will not push Sharp toward a bright future.

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