UPDATE 3-In TV display tie-up, Taiwan's Hon Hai takes Sharp stake

Tue Mar 27, 2012 7:24am EDT

* Sharp to issue shares worth 66.9 bln yen to Hon Hai group

* Hon Hai to be Sharp's top shareholder with about 11 pct

* Sharp to sell 46.48 pct stake in Sakai plant to Hon Hai

* Under-used Sakai factory weighing on Sharp profits

By Reiji Murai and James Topham

TOKYO, March 27 (Reuters) - Sharp Corp will issue shares worth $808 million to Taiwan's Hon Hai Precision Industry as part of a tie-up in liquid crystal display production aimed at reversing losses at the Japanese firm from declining TV sales.

The issue of 66.9 billion yen ($808 million) worth of shares will give Hon Hai, the main manufacturer of Apple devices, around an 11 percent stake in Sharp, making it the top shareholder in Japan's biggest LCD maker.

Together with Sony Corp and Panasonic Corp , Japan's three main TV makers expect to lose $17 billion this year, savaged by competition from foreign rivals led by South Korea's Samsung Electronics.

Slumping television demand has forced Sharp to slash output at its main plant in Sakai, western Japan, which is working at half its capacity.

Losses from the plant, in turn, pushed Osaka-based Sharp deep into the red in the last quarter, erasing about 180 billion yen in equity. At end-December, Sharp's net debt-to-equity ratio was 1.03, six times the industry average and the highest among Japan's electronics firms, Thomson Reuters data shows.

"The electronics market is becoming severe, with rapid price declines due to the development of digital technology and increased competition in a global market," Sharp said. "We believe the timely action is necessary to tackle these changes."

Sharp, which earlier this month named company veteran Takashi Okuda as its new president, said it would issue new shares to four Hon Hai group firms at 550 yen each, an 11 percent premium to Sharp's Tuesday close.

It will also sell a 46.48 percent stake in the Sakai plant to Hon Hai, raising 66 billion yen from the sale.

"With the strong yen and (many other) difficulties we face, Sharp is limited in what it can do as a single company," Okuda told reporters at a briefing in Tokyo. "But together, the strength of the two firms in an alliance should become a new model to compete to win globally."

Sharp said it would use the proceeds to invest in new LCD display technology and LCD panels for mobile devices.

Hon Hai will also buy up to 50 percent of the LCD panels produced at the Sakai plant, Sharp said in a statement.

"This is positive for Sharp as it will allow them to share the current deficit at the Sakai plant," said Kazuhara Miura, a senior analyst at SMBC Nikko Securities in Tokyo.

HSBC analyst Jenny Lai in Taipei said the investment could help Hon Hai leverage Sharp's IPS technology, which is used in iPad and iPhone panels.

RECORD LOSS

Sharp has projected a record 290 billion yen ($3.5 billion)net loss for the year to end-March as it struggles with a slump in LCD demand. It has trimmed its forecast for LCD TV sales to 12.8 million from a previous 13.5 million.

Sales of LCD TVs almost halved in October-December, and only sales of TV models with screens of 60 inches or bigger in the United States remained robust.

Sharp has been especially hammered by a glut of LCD panels worldwide, while the yen's surge to a record against the dollar late last year eroded its export competitiveness. That meant it struggled to sell products from its two main LCD plants in Japan that it doesn't use for its own TV production, forcing it to write off 33 billion yen of inventory in the last quarter.

A slump in its own TV sales caused LCD panel inventories to balloon further.

Sharp shares, which have fallen by more than a fifth since the company forecast its record annual loss, closed up 4.4 percent at 495 yen ahead of the announcement on Tuesday.

In Taiwan, Hon Hai shares rose 1.9 percent to their highest in more than 13 months. The stock has jumped 76 percent since late-August when Hon Hai reported higher second-quarter revenue and increased market share.

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