Taiwan’s Foxconn struggles to save sinking Sharp

Taiwan billionaire Terry Gou built a manufacturing empire that assembles iPhones and iPads. His Foxconn Technology Group may be key to ensuring Sharp’s survival and a stable supply of components for Apple.

Sharp’s shares collapsed to the lowest level in 37 years in Tokyo and its bonds fell after the maker of Aquos TVs forecast an annual loss of 250 billion yen ($3.2 billion), bigger than the company’s market valuation. That slump prompted Foxconn to announce Friday it will seek a lower price for its 9.9 percent stake while pledging to forge ahead with the deal.

Foxconn wants a stake in Sharp to secure access to the latest technology for parts used by its biggest customer, Apple. In offering a lifeline, Gou is betting that Sharp will continue to provide it with key components for the iPads and iPhones that Foxconn assembles, while ensuring one of Apple’s important suppliers survives.

“Apple needs Sharp,” said Alberto Moel, an analyst at Sanford C. Bernstein in Hong Kong. “Sharp’s capacity is large enough that if it were taken offline, it could hurt Apple.”

Gou, the founder and chairman of Foxconn Technology Group, in March engineered a 133 billion yen investment that will give his company a stake in Sharp while injecting 66 billion yen of his own cash into its display affiliate. A plunge in Sharp’s shares prompted Foxconn to announce last week it will renegotiate the deal, seeking more favorable terms.

The stakes are high for all parties involved. In addition to a new iPhone, a new, smaller iPad and perhaps an Apple TV are expected to revive profits for Apple after net income and sales missed estimates for the second time since 2003 in the quarter ended June.

Chief Executive Officer Tim Cook has said TVs are an area of “intense focus” for Apple.

The company is working on a television that may be unveiled this year and released in 2013, according to Gene Munster, an analyst at Piper Jaffray Cos.

If Apple needs Sharp, the question now is can Foxconn fix Sharp in order to advance its own ambitions for growth. Foxconn and its clients compete with Samsung Electronics, the world’s biggest maker of phones, flat panels and flat-screen televisions globally. Gou figures a closer alliance with Sharp and its technological expertise will put Foxconn on a better competitive footing with Samsung.

“The Sharp deal will help us to defeat Samsung,” Gou, 61, told investors on June 18 at the annual meeting of Hon Hai Precision Industry, Foxconn’s flagship and the business that does Apple assembly.

Bloomberg