By David Hsieh, senior director of IHS Technology, and Yoshio Tamura, senior director of IHS Technology 25 February 2016

IHS Technology senior directors David Hsieh and Mr. Yoshio Tamura have issued the following analysis of Sharp’s announcement today that its board members agreed to a takeover by Taiwan’s Hon Hai, also known as Foxconn. For more information, please contact David.Hsieh@ihs.com or press@ihs.com.

IHS Technology Views:

Despite its recent financial struggles, Sharp remains one of the world’s most innovative display makers and still holds advanced LCD technologies, particularly for high-resolution low temperature polysilicon (LTPS) smartphone displays, low-power oxide LCD panels, and extra-large TV panels. Sharp also owns many important, fundamental display patents.

Hon Hai is one of the largest systems integrators and subcontract manufacturers in the world, and it is a key component supplier for many other brands. Furthermore, Hon Hai’s scope has expanded from being an original equipment manufacturer (OEM) to creating their own brands (e.g. InFocus), in addition to component manufacturing (e.g. displays and batteries) and smart system integration (e.g. smart home, robotics, Internet of Things, and smart cars).

Hon Hai’s overarching strategy in acquiring Sharp is to strengthen its corporate position in the following ways:

1. Smartphone, TV and automotive-display capacity and technology

Hon Hai has been shaping its display business for years, and the company already owns half of Sharp’s Gen10 TFT LCD fab, which produces large LCD TV panels. Innolux, one of the largest TFT-LCD manufacturers, is also owned by the Hon Hai Technology Group.

Meanwhile, Hon Hai’s most aggressive investment is in Gen6 LTPS TFT LCD fabs currently under construction, including one in Kaohsiung, Taiwan, and government-sponsored fabs in Guizhou and Zhengzhou, China. The company is investing more than US$10 billion in order to support future OLED display manufacturing; however, Hon Hai requires good technology stances and engineering resources to support the ramp up of these three fabs. Because Sharp is the leading supplier of LTPS and oxide LCD, acquiring Sharp allows Hon Hai to spread these display technologies to these three new fabs.

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.

2. System integration manufacturing business lines

Sharp’s position in LCD TV, home appliances (especially in Japan), business solutions, LED, electronic components and devices provides Hon Hai with the know-how, capability and technology needed to strengthen its system integration and manufacturing business lines, which are strong areas for Hon Hai.

Sharp’s LCD panel capacity and capability, and its successful history in electronic components and devices, are also important to Hon Hai, because they aid the company’s vertical integration efforts. Compared to Pegatron, TPV, Qisda and other electronics manufacturing service (EMS) competitors, Hon Hai can now claim that they provide complete solutions, including key components.

3. Merging Hon Hai’s skills and Sharp’s assets

Even without its own licenses or brands, Hon Hai has clearly defined its strategy in systems integration and EMS. However, Hon Hai will need to rely on its excellent systems integration capability and supply-chain management skills, to win more orders from leading global brands and sustain business growth.

LCD TV is the most important consumer electronics sector for Sharp. According to the IHS TV Display Supply Chain Tracker, Sharp is forecast to ship 6 million LCD TVs worldwide in 2016. Sharp also licenses products to Hisense and BestBuy in the North American market, and to UMC in Europe.

In addition to TVs, Sharp’s branded products include smartphones, notebook PCs, medical devices, tablet PCs, interactive white boards (IWB), public displays, digital multi-function printers (MFPs), office automation desktop monitors, and air cleaners. All of these products will benefit from combining Hon Hai’s proven manufacturing capability and Sharp’s well-known brands. For example, Hon Hai could focus on manufacturing and supply chain management, while Sharp focuses on panel manufacturing and brand marketing.

As a recognizable and prestigious electronics company in Japan, the takeover of Sharp by Hon Hai is certain to change the company’s culture and the way the business is run. Hon Hai is well known for its aggressive and quick managerial responses to end-market demand, which is quite different from Sharp’s existing corporate culture. Hon Hai’s efforts to take over Sharp and restructure the company to make it more competitive will be a huge, difficult and time-consuming effort; however, both companies will become stronger, after the successful integration of each company’s core strengths.