Foxconn Buys into Sharp Gen10

Have you ever heard of Hon Hai? It’s the parent company of Foxconn, which in turn has been in the news a lot lately as the firm that assembles many of Apple’s products. Foxconn is a giant in its own right, assembling components for a wide range of manufacturers, large and small. And now it is taking a giant step to becoming even bigger on the world stage. Hon Hai announced last week that it was buying half of Sharp’s interest in Sharp’s Gen 10 LCD panel plant, which is handles the largest substrates of any LCD plant in the world.

Sony was Sharp’s original partner in the Gen 10 plant, but that company’s financial hard times led it to cancel its commitment to make further investments. Sony will still have a stake in the plant under this new arrangement, but it will be just 7% while Sharp and Hon Hai will split the remaining 93%.

This is an important development for both Hon Hai and Sharp. For Sharp, it helps decrease the bleeding caused by the debt service on this huge factory. According to some sources it currently is running at as little as half capacity, due to the downturn in worldwide demand for flat panel televisions. At the same time, Sharp has announced that it will focus on manufacturing its own television sets only in the larger sizes of 50″ and above. It will job out the smaller sizes of Sharp-branded sets to other companies, including Foxconn. For Hon Hai, this new deal provides an inside track for panel supplies, giving the company better vertical integration.

I suspect that the eventual winner in this deal will be Hon Hai. While Apple is certainly a major customer, this move will make Foxconn even more attractive as an alternative to the Korean duo of LG and Samsung for major brands looking to outsource their high-end LCD TV production. I would expect that they were able to buy into Sharp’s operation at distress-sale prices, and as the worldwide economy recovers, that investment will likely gain in value.

If you want to read more about this deal, I recommend an excellent analysis written by David Hsieh of DisplaySearch.