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September 20, 2017

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Hon Hai to help Sharp improve profitability

Hon Hai Precision Industry Co., now in talks to acquire a stake in the Japan-based Sharp Corp., said yesterday that it is taking concrete steps to help the struggling Japanese partner improve its profitability and demonstrate the value of the partnership.

Hon Hai precision, the flagship company of the world's largest contract electronics maker, made the statement after Tetsuo Onishi, a senior executive managing officer at Sharp, was quoted in Nihon Keizai Shimbun as saying on Friday that his company hopes the acquisition talks with Hon Hai Precision will be accelerated.

Tetsuo said an agreement is expected to be reached over the acquisition deal if they have sufficient time for talks, adding that the negotiations can be held in Taiwan if needed. The talks between top executives of both parties will be scheduled this month at the earliest, he continued.

Tetsuo's remarks came one day after Hon Hai Precision Chairman Terry Gou did not show up Thursday at a scheduled news conference in Osaka, at which he was widely expected to announce the conclusion of the acquisition deal.

In response, Hon Hai Precision said yesterday that it hopes to help Sharp broaden its customer base, thereby improving the Japanese partner's earning ability and eventually demonstrating the value of the partnership.

While on his visit to Japan, Gou said that the key point in the acquisition deal with Sharp lies not in how much unit share price Hon Hai will pay for its stake in the company, but in how the partnership can result in a win-win scenario for both sides.

Gou also noted that the goal of a successful Hon Hai-Sharp partnership would be to help Sharp secure profitable operations. He hoped the media would highlight Hon Hai's efforts to help Sharp improve its global supply chain management, reduce its overall operating costs and speed up new product development, instead of simply focusing on the acquisition prices.

In March, Hon Hai Precision and three of its affiliates agreed to buy a 9.9-percent stake in Sharp for 67 billion Japanese yen (US$853 million), or 550 yen per share.

After the announcement, Sharp shares plunged almost 70 percent, hitting a low of 164 yen on Aug. 15 amid concerns over its bottom line.

In addition to a plan to cut its workforce, Sharp revised its full-year loss forecast from 30 billion yen to 250 billion yen.

With the dive in Sharp shares, the two sides decided to renegotiate the terms of the deal, including the acquisition price, but no conclusion has yet been reached.

On Friday, Hon Hai Precision reported NT$12.61 billion (US$420 million) in net profit, down 15.5 percent, with earnings per share (EPS) of NT$1.06.

The EPS was higher than the market had expected. Analysts had anticipated that Hon Hai Precision would book huge losses in the second quarter on its investments in Sharp, driving its EPS to below NT$0.5.

But Hon Hai Precision booked about NT$4.5 billion in losses over the Sharp investment based on general accounting principles, and the write-down did not substantially affect its bottom line.

Hon Hai Precision's gross margin for the second quarter stood at 7.92 percent, up 1.28 percentage points from the first quarter because of its efforts to cut costs.

Hon Hai Precision shares closed down 0.82 percent at NT$84.80 on the Taiwan Stock Exchange on Friday.

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