Foxconn has begun renegotiating its partnership with Sharp after the latter’s announcement of huge losses, but it won’t have a choice but to come to the latter’s quick rescue.
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Apple (NASDAQ:AAPL) manufacturing partner Foxconn had proposed a 133 billion-yen investment in the display company earlier in the year. After shares in Sharp fell to their lowest level in 37 years and it forecast an annual loss of 250 billion yen or $3.2 billion, Foxconn announced it would renegotiate the deal. Sharp’s loss was bigger than the company’s market valuation and Foxconn wants a more favorable deal for its proposed 9.9 percent stake. However, Foxconn chairman Terry Gou has been almost forced to ensure Sharp’s survival because of Apple’s reliance on the latter.
“Apple needs Sharp,” Sanford C. Bernstein analyst Alberto Moel told Bloomberg. “Sharp’s capacity is large enough that if it were taken offline, it could hurt Apple.”
While Sharp already contributes to iPhone and iPad manufacturing, its technology is also likely to come in handy if Apple decides to go ahead with launching a rumored high-definition television set. Apple chief executive Tim Cook has said TVs are an area of “intense focus” for Apple.
Ironically, it is Sharp’s liquid-crystal display division that is making the biggest losses, mainly because of the industry’s overcapacity. Global shipments of televisions, which are the major user of display panels, fell about 8 percent in the first quarter.
“Sharp needs to show that it can fix its LCD unit,” Mito Securities analyst Keita Wakabayashi told Bloomberg. “It should be able to improve its small- to medium-sized panel business because they are used in tablets and smartphones, where demand is growing.”
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