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Uphill battle awaits Foxconn with Sharp under its wing

OSAKA -- Hon Hai Precision Industry faces major challenges as it charts out a path for growth with just-acquired Sharp as the cornerstone of the effort.

The Taiwanese contract electronics manufacturer, known as Foxconn Technology Group, said Friday that the purchase has been completed. With this, Osaka-based Sharp has become the first major Japanese electronics manufacturer to be bought out by a foreign company.

The deal seems to have lifted Sharp out of the mud for now. The company's consolidated net worth is no longer negative, thanks to a total of 388.8 billion yen ($3.84 billion) in investments from Foxconn.

But Sharp's sales have continued to slide. Although its April-June group operating loss narrowed to just 2.5 billion yen, less than a tenth of the year-earlier figure, sales fell around 30% as all five business segments recorded drops. Mainstay LCD panel operations remain in the red. With a large-panel production company managed with Foxconn also struggling, Sharp booked an 11.5 billion yen investment loss.

With funding from Foxconn, Sharp now plans 200 billion yen in capital investment in the OLED panel business. This step is unlikely to boost earnings over the short term.

In addition to streamlining operations, Foxconn officials have implied that Sharp's staff may be downsized by 7,000 or so worldwide. This has sparked rumors within Sharp of massive layoffs to come.

In early June, Sharp sales executives and others gathered for a meeting in the Chinese city of Shenzhen. When they rambled on without a clear point in their explanations, Foxconn chief Terry Gou reportedly became furious and told them that they were not being fired only because the investment had not been made yet.

Foxconn and Sharp signed the acquisition deal in early April, aiming to close by the end of June. But a Chinese antitrust review took longer than expected, and Foxconn grew more frustrated as it learned the realities of Sharp.

Foxconn is increasingly eager to lead Sharp's operations as its own earnings languish. Foxconn's shares declined nearly 4% on Friday, while Sharp jumped. The market reacted to the news that Foxconn's net profit had plunged 31% to 17.6 billion New Taiwan dollars ($559 million) for the April-June period, marking a third straight quarter of dropping profits and the lowest quarterly profit in three years. The slowdown at Apple, a key customer accounting for more than half of Foxconn's sales, dealt a blow.

Foxconn's recent shopping spree seems to reflect its sense of urgency. The company said in May that it would buy the conventional mobile phone business of Nokia. It has also stepped forward as a potential investor in South Korean home appliance maker Tongyang Magic.

Steps are already being taken to advance Foxconn's new global growth strategy. Foxconn executive Tai Jeng-wu replaces Kozo Takahashi as Sharp's president Saturday.

Foxconn is thinking about revamping Sharp's leadership team, possibly by sending over more of its own managers. It faces the tricky task of putting a full-fledged merit system in place at Sharp while bringing out Sharp's strength in developing unique products.

(Nikkei)

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