Shock waves were felt on Wednesday when Hon Hai Precision Industry Co (鴻海精密) announced a deal with Sharp Corp worth ￥132.9 billion (US$1.6 billion), allowing Hon Hai to share half the capacity of an advanced 10th-generation (10G) LCD factory owned by Sharp and Sony Corp, as well as a 10 percent stake in the premium Japanese TV brand.
Just three or four years ago, such a partnership would have been unthinkable, as Taiwanese companies have mostly played minor roles as component suppliers to Japanese clients, or as assemblers of low-end products.
The newly unveiled Hon Hai-Sharp alliance has taken the relationship between Taiwanese and Japanese electronics manufacturing firms to a new level, advancing Hon Hai’s ties with the Japanese company to that of an equity investor.
The deal shows that Japanese firms need to step up collaboration with overseas partners to generate profits and to safeguard market position, amid its strong currency and the rise of South Korean firms: A set of circumstances not altogether unfamiliar to Taiwanese firms.
The deal marked the first major strategic alliance between Taiwan and Japan as companies from both countries look to fend off competition from rivals, such as Samsung Electronics Co.
South Korean brands Samsung and LG have replaced Japanese brands as consumers’ top choices when buying new TVs. Furthermore, Samsung led its rivals in launching a low-cost LED TV and has tried to sell them to households in emerging markets.
Market researcher DisplaySearch’s latest statistics showed that Samsung and LG commanded a combined 40 percent of the world’s flat-panel TV market, while Japan’s big three — Sony, Panasonic and Sharp — saw their share drop to a combined 23 percent.
Sharp, the world’s No. 5 TV brand, faces mounting financial pressure after it posted a net loss of ￥213.5 billion for the three-quarter period ending Dec. 31, because of losses after operations were suspended at a large-size LCD plant.
Hopefully, the new partnership will help heal the nagging pain experienced by Hon Hai and other Taiwanese manufacturers because of their lack of development in areas such as branded business and advanced technologies, which puts them at a disadvantage when digesting capacity and making profits.
Cooperating with Sharp could help Hon Hai obtain more advanced LCD technologies to help meet growing demand for the high-resolution screens used in smartphones and other mobile devices.
With Sharp’s supply of large flat panels from the 10G factory, it is quite likely that Hon Hai will receive new orders from Apple to manufacture LCD TVs, as well as its current assembling of iPhones and iPads for the US company.
For Sharp, it can now share the expense of the expensive 10G facility. It could also cut costs by farming out more production to Hon Hai, which would also help Hon Hai digest more panels produced by its LCD arm, Chi Mei Innolux Corp (奇美電子), which is especially important since it is still suffering the effects of an oversupply-driven price slump.
However, while this deal appears to promise much for the nation’s LCD industry, a similar scenario appears unlikely to take place in other industries, such as the semiconductor sector. Rather than gain resources, Taiwan’s PC DRAM industry could lose technological support from Japan’s top memory company, Elpida Memory Inc, after it filed for bankruptcy protection earlier this year as the company could accept potential investment bids from South Korea’s Hynix or Japan’s Toshiba.
However, it would be difficult for Taiwanese companies in other sectors, such as the semiconductor industry, to follow the same model because they would find it hard to find suitable partners in Japan due to the decline of their Japanese peers.
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