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Sharp's Japan Play Doesn't Bode Well for Wisconsin

Tim Culpan

(Bloomberg Opinion) -- Sharp Corp. buying all or parts of Japan Display Inc. could bring more bad news for Wisconsin's hopes of hosting a world-class display factory.

That’s because Osaka-based Sharp is actually owned by Foxconn Technology Group, the Taiwanese iPhone assembler that at one point said it would invest $10 billion to build a leading-edge 10.5-generation liquid crystal display plant in the U.S. state, a battleground that is key to President Donald Trump’s reelection campaign.

Despite a ground-breaking ceremony in 2018 featuring Trump and Foxconn founder Terry Gou, however, the expansion hasn’t taken off and the state and Foxconn are enaged in a high-stakes game of poker over tax credits. Now, the Sharp and JDI deal could push the Midwesterners, who were promised 3,000 jobs, further to the sidelines.

Sharp’s Chairman and CEO Tai Jeng-wu is a long-time lieutenant of Gou. JDI is negotiating with Sharp, and its key client Apple Inc., to sell the company’s plant in Hakusan, in central Japan, Nikkei reported Friday. Sharp later confirmed that it’s considering the move. Both companies make display for iPhones and iPads.

Sharp isn’t Foxconn’s only LCD business. It also owns Taiwan’s Innolux Display Corp. A decade ago, Innolux announced a three-way merger with Chi Mei Optoelectronics Corp. and TPO Displays Corp. to form Taiwan’s largest and the world’s third-largest display panel maker.

Gou was very blunt about his reason for that deal. “This ambition is very clear, we want to be a key player,” in panels, he said at the time. And that’s just what he has become.

A takeover of some or all of JDI could make sense. When Foxconn finally took control of Sharp in 2016, after a four-year battle, the Japanese company was in trouble. It had among the best  technology in the world, and a key client in Apple, but inefficient operations and lack of capital meant it was losing money and lagging behind South Korean rivals Samsung Electronics Co. and LG Display Co.

Thanks to Foxconn’s skill at efficient manufacturing, Tai managed to turn Sharp around in fiscal 2018. A year later, it posted its largest net income in over a decade.

In February, I argued that the Foxconn-Sharp merger ought to be a template for JDI in considering a foreign buyout, given the lack of local potential partners. Tai was reported as saying in June that he was in fact interested in helping JDI if he could get support from the Japanese government.

A Sharp-style turnaround can be done for JDI. But that would mean Foxconn owning at least three display businesses: Innolux, Sharp and parts of JDI. A fourth, let’s call it Foxconn Wisconsin, would be overkill. 

The argument can be made that bringing more businesses together breeds size and scale. But such efficiencies get lost on a 14-hour flight from Osaka to Chicago (Foxconn’s site is in Racine County, an hour north of O’Hare International Airport) and in a nation that has almost no background in advanced display manufacturing.

Foxconn Wisconsin would be further pressured by increasing capacity that’s coming online in China, where the government props up local companies as part of its national technology-independence drive, which could push prices and profitability down.

The $3 billion in sweeteners that Wisconsin offered to Foxconn could look like chump change compared to the amount of money that Beijing is willing to spend to develop homegrown expertise.

Foxconn can hold back the Chinese pressure by building large, lean and efficient operations in Japan and Taiwan. But that makes it even harder to argue the case for a white elephant project in a far-off land.

To contact the author of this story: Tim Culpan at tculpan1@bloomberg.net

To contact the editor responsible for this story: Patrick McDowell at pmcdowell10@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.

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