Shares of Hon Hai Precision Industry Co (鴻海精密) rallied to their highest level in more than a year after it clinched a ¥132.9 billion (US$1.6 billion) LCD deal with Sharp Corp on Tuesday, that analysts said would help Hon Hai secure new orders for TVs from Apple Inc.
They said the tie-up could also open the door for Hon Hai to implement new high-resolution LCD technologies from Sharp, at a time when local LCD panel makers are facing problems ramping up high-resolution panel production to meet demand.
Sharp is one of Apple’s main LCD panel suppliers.
Hon Hai jumped 4.63 percent to NT$113 on the Taiwan Stock Exchange, while Sharp surged 15.15 percent to ¥570 on the Tokyo Stock Exchange.
10TH GENERATION
Based on Tuesday’s agreement, Hon Hai will take a 10 percent stake in Sharp and have a 46.5 percent share of Sharp Display Products Corp, which operates a 10th-generation LCD factory that can produce 60-inch high-definition LCD TV panels.
“We believe this acquisition is positive for Hon Hai as it should help Hon Hai gain more business,” Daiwa Capital Markets said in a report on Tuesday. “It should help Hon Hai to secure potential upcoming Apple iTV manufacturing business.”
“We believe Hon Hai will have better vertical integration in manufacturing for the Apple iTV following its acquisition of a stake in Sharp’s plant in Sakai,” Daiwa said.
The brokerage expects Apple to launch the iTV by the end of this year and Sharp to supply TV panels from its 10G plant.
Barclays Capital Inc analyst Kirk Yang (楊應超) said in a report issued yesterday that the deal appeared “to be one of the best Hon Hai strategic investments in history.”
Sharp is expected to gain more market share from Samsung Electronics Co and LG Display Co in supplying LCD panels to Apple because of competition issues, Yang said, which would help Hon Hai secure orders from the US's most valuable company to supply mechanical parts and components.
Benefiting from the increase in orders, Hon Hai should see a 4 percent potential increase in its earnings per share next year from the current estimate of NT$3.18 a share, Yang said in the report.
DisplaySearch vice president David Hsieh (謝勤益) said the deal would strengthen Hon Hai's LCD TV contract manufacturing business.
"With the panel support from Sharp's 10G factory, Hon Hai will extend its product line to 40-inch, 60-inch and 70-inch models," Hsieh said in a report issued yesterday.
DisplaySearch forecast Hon Hai would ship 9.5 million units of LCD TVs this year including 8 million to Sony and 1.5 million to Sharp, while BNP Paribas predicted Hon Hai would ship 10 million LCD TVs this year, with over 8 million going to Sony.
Hsieh said the newly-unveiled partnership with Sharp would provide a driver for Hon Hai's TV shipments in the future. Moreover, Sharp is also likely to transfer much-needed high-definition LCD manufacturing technologies to Hon Hai, such as high resolution low temperature polysilicon (LTPS), oxide TFT, color filter and other advanced process technologies, he added.
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