Ongoing consolidation has me sometimes feeling that the semiconductor and electronics industry is a shrinking group of major corporations representing leading sectors. The headlining M&A story of the year—so far-- is the Foxconn-Sharp merger penned at the beginning of April, but which began in 2012. The seesaw story of Sharp’s financial troubles plagued the company for a few years and included bailouts by Japan’s leading banks, followed by key interests for acquisition, and finally the sale to giant Foxconn, which needs display IP to grow its market share. Originally, it looked like Sharp would turn to Innovation Network Corporation of Japan (INCJ) to bail it out. INCJ is a private-public fund but the deal would have broken Sharp into sector businesses with the prized LCD likely going to Japan Display Inc., as recently discussed by Financial Times. The article also noted that Sharp’s other business lines, such as home appliances, would have folded into Toshiba, eliminating the existence of Sharp entirely. The Foxconn deal, worth $3.5 billion, keeps Sharp alive in name but gives two-thirds control to Foxconn/Hon Hai. Why was Foxconn so interested in Sharp? Other than the wider movement of China actively increasing, through acquisition, it's footprint in the semiconductor manufacturing sector, Foxconn needs Sharp’s display IP. We are all well aware of the size and scope of Foxconn in the industry and the power that it holds in negotiating deals, whether for product or, in this case, for new corporate acquisitions. Foxconn’s interest in Sharp stems from the demand for displays used in smartphones, automotive electronics, the growth of IoT with smart interface displays, and the continued global demand for thin-film-transistor liquid crystal displays (TFT LCD). Foxconn has been keen to grow its TFT LCD capabilities investing not only in three new fabs in China, but also through various acquisitions. Sharp, although it has not held onto the brand leadership status it once held, is still a recognized leader in display technology, especially the new, low temperature polysilicon (LTPS) technology used in smartphones displays, as well as low-power oxide LCD panels used in large-sized TV displays, as discussed by IHS recently. Citing Foxconn, Financial Times notes that during the recent press conference signing the deal, “Mr. Gou pointed to Sharp’s proprietary know-how to mass-produce the advanced IGZO (indium gallium zinc oxide) display technology as a standout, calling it superior to the popular OLED (organic light-emitting diode) technology. IGZO technology is used in products such as Apple Inc.’s iPad.” The IHS research further underscores the value of this merger for Foxconn/Hon Hai: “According to IHS, Sharp controlled 22 percent of global LTPS and oxide LCD display shipment revenues for smartphones in 2015, which will strengthen Hon Hai’s stance in mobile phone displays. Through its GIS subsidiary, a leading touch panel supplier and system integrator for mobile products from Apple and other companies, Hon Hai group has been aggressively expanding into touch-panel technology and assembly integration. Sharp also owns many leading touch-panel technologies and capabilities, so the business synergy in this area is strong.” Furthermore, for Foxconn/Hon Hai, which has been staking out market share as an OEM, the acquisition of Sharp gives it instant brand recognition in an intensifying competitive global arena. The proliferation of smart devices, particularly for smart homes, is a keen opportunity for Hon Hai and with Sharp’s well-known longevity in home appliances, there is additional strategic sense to the take-over. On a different note, the take-over of Sharp, one of Japan’s long-standing electronics titans by the Chinese manufacturing giant Foxconn/Hon Hai, has not happened quietly in Japan. There are significant concerns that this marks but the beginning of consolidation that will hit Japan as China works to position itself as a global leader in electronics production writ large. While there are significant challenges to the merger due to the financial problems that Sharp brings with it, there are also real management challenges for the two companies in terms of strong geographic and cultural identities, internal corporate culture differences, and significant concern in Japan in general as to how this first mega-merger will play out with a Chinese investor.
Author: Lisa Cairns
Lisa Ann Cairns, Ph.D., Contributor Lisa comes to EPS with a diverse background that includes 10 years of hands-on experience in IT as well as in semiconductor and electronics distribution. The majority of that time, Lisa spent in the role of Senior Market Analyst and Senior Contributor at a leading, independent distributor of semiconductor and electronics. Prior to that tenure, she was a professor of linguistic anthropology, engaged in social science research, modeling, and analysis. The skills of observing and explaining complex social patterns adds a rich framework in which to indentify and to understand the range variables that constantly affect today’s globalized marketplace. Lisa’s admixture of experiences brings a fresh eye and a contextualized understanding of the global semiconductor and electronics supply chain. Lisa’s market analyses provides readers with unique views spanning micro- to macro-level industry events, synthesized insights bridging business and economics, as well as connecting the dots between upstream to downstream industry events that affect and inform distribution strategies. Lisa has a Ph.D. and A.M. in Linguistics from The University of Chicago, during which time she was awarded the prestigious National Science Foundation Doctoral Dissertation Research Improvement Grant. She holds a B.A. from Hofstra University, where she was Hofstra's first woman undergraduate to be awarded a Fulbright-Hayes Grant for independent research prior to attending graduate school. Lisa is currently consulting and freelance writing and can be reached at email@example.com.