Foxconn, Sharp shares slide after Japan firm's surprise writedown

By Kiyoshi Takenaka and Sarah Wu

TOKYO/TAIPEI (Reuters) -Shares of Taiwan's Foxconn and its display affiliate Sharp Corp fell on Friday after the Japanese firm reported a surprise $1.9 billion loss due to writedowns related to its flat-screen assets.

Sharp's shares slid 8.3% on Friday, on track for their biggest one-day loss since February. Shares in Foxconn, Sharp's top shareholder with a 34% direct stake, also dropped 2.4% to a nearly two-month low after reporting a big plunge in earnings due to a $564 million hit related to the Japanese firm.

The surprise impairment led some analysts to downgrade their forecasts for Foxconn, the world's largest electronics contract manufacturer and a key Apple supplier. Daiwa cut its 2023 and 2024 earnings forecast for Foxconn by 14% and 5% respectively to reflect a non-operational loss from Sharp.

"Given Sharp had a lot of trouble last year, we did see it coming, although we didn't know when or how much," Daiwa analyst Kylie Huang said.

"I don't expect to see a further, wider loss from Sharp. But, again, Sharp is a wildcard."

Foxconn said it would seek an explanation from the Japanese electronics firm and "work harder on the management of our investment businesses", adding that it would ask Sharp to "adjust its management team" to improve operations if needed.

Sharp said it took a hit of 220 billion yen ($1.6 billion) as it wrote down the value of building and machinery in both its LCD and OLED display businesses in Japan, and other assets.

The biggest impairment of 188.5 billion yen came from a LCD subsidiary, and a Sharp spokesperson said the majority of that loss was attributable to its large-size flat screen business Sakai Display Products Corp (SDP).

SDP makes large LCD panels used in televisions and its top clients include South Korea's Samsung Electronics Co and LG Electronics. It has been a major earnings drag due to weakening global demand for televisions and other electronics products.

Sharp, which held a 20% stake in the loss-making business, took over the remaining 80% stake from a Samoa based investment firm last year and revised down in November its annual earnings forecast for the year ended in March by 62%, citing deepening losses at the unit.

Sharp said last year it decided to take full control of Japan-based SDP to ensure a smooth supply of panels at a time when it saw potential interest from clients seeking to diversify their supplier bases beyond China amid mounting Sino-U.S. trade tensions.

Foxconn, formally called Hon Hai Precision Industry Co Ltd, had bailed out Sharp in 2016 by purchasing two-thirds of the loss-making company for $3.5 billion, betting the deal would help it strengthen its pricing power with Apple. Foxconn's other affiliates also have stakes in Sharp.

Foxconn Chief Financial Officer David Huang said on an earnings call on Thursday that Foxconn was Sharp's largest shareholder, but noted it did not have the majority vote in the Japanese company.

Huang said Sharp operated independently and was not controlled by Foxconn. Sharp's CEO Wu Po-Hsuan previously worked for the Taiwanese company.

($1 = 135.0500 yen)

($1 = 30.6830 Taiwan dollars)

(Reporting by Kiyoshi Takenaka and David Dolan in Tokyo and Sarah Wu and Yimou Lee in Taipei; Writing by Anne Marie Roantree; Editing by Miyoung Kim and Jamie Freed)