* Hon Hai says it, Sharp may boost capacity at LCD plant
* Hon Hai deal would make it biggest Sharp shareholder
* Sharp seeking support as Japan's TV sector bleeds red ink
* Talks to continue on Friday - reports
By Tim Kelly
SAKAI, Japan, Aug 30 Hon Hai Precision Industry
and Sharp Corp may spend over $1 billion to boost
capacity at the world's most advanced LCD panel factory in
western Japan, part of an effort to rescue century-old Sharp
from the wreck of Japan's sinking TV industry.
Hon Hai chairman Terry Gou, seeking to further tap Sharp's
expertise to make more display panels for Apple's
iPhones and consumer electronics, is considering a deal that
would make Hon Hai the biggest shareholder in Sharp with at
least a 9.9 percent stake.
Gou on Thursday visited Sharp's flagship LCD panel factory
in Sakai. western Japan, which is 38 percent owned by Hon Hai.
Japanese media reports said he later left Japan and the two
firms would talk on Friday.
The two companies will also use Hon Hai's procurement muscle
to help Sharp cut costs, C.C. Lin, Hon Hai's most senior
official in charge of the Sakai plant, told reporters after
Gou's visit, adding the two firms might spend more than $1
billion to boost capacity at the facility.
Gou has said he wanted to conclude a deal as soon as
possible and his visit fuelled expectations that an announcement
could be made as early as Friday.
Gou's spokesman in Taipei, Simon Hsing, said he could not
immediately confirm the whereabouts of the elusive Taiwanese
Hon Hai is also considering buying Sharp's TV assembly
plants in China and Mexico, and may list the Sakai plant on
Taiwan's stock exchange in two or three years, Lin said.
Gou has said that whether he takes a stake in Sharp will
depend on whether the Japanese firm will take his advice on how
to restore profits. "We can lower a lot of costs at Sharp such
as in component procurement. We buy a lot of things," Lin said.
"TREAT THE DISEASE"
Weak demand that left the $4 billion Sakai factory operating
well below capacity forced Sharp, the maker of Aquos LCD TVs, to
post its worst ever annual loss in the last business year.
But helped by recent orders won by Hon Hai from Sony and
U.S. TV maker Vizio, production at the plant has surged,
according to sources. Lin said output at Sakai was expected to
exceed 80 percent of capacity by the year's end.
The Taiwanese company agreed to pay 67 billion yen ($854
million), or 550 yen a share, for 9.9 percent of Sharp in March,
but reopened talks in August to seek a lower price after the LCD
TV pioneer's stock slumped below 200 yen while mounting losses
put a question mark over its future.
Sharp's shares have bounced by more than one-third in the
past two weeks to 227 yen from their lowest level in more than
Sharp, which takes its name from the ever-sharp mechanical
pencil it invented a century ago, needs backup from Hon Hai if
it is to remain viable in the long term, investors say.
"There's lots of room for Terry Gou to help improve Sharp,
though it will be difficult and it will take a long time," said
Oscar Chung, fund manager at Taiwan's Capital Securities
Investment Trust, which owns Hon Hai shares.
HON HAI LIFT
For now, Sharp is relying on hundreds of billions of yen of
fresh loans from its main banks, Mizuho Financial Group
and Mitsubishi UFJ Financial Group, to pay its debts
over the next year.
"The role of the banks is to treat the disease, but the role
of Hon Hai is to get it out of bed and running," said Yuuki
Sakurai, CEO of Fukoku Capital Management.
Sharp and other Japanese TV makers Sony Corp and
Panasonic Corp, which ruled the global TV market in the
1980s and 1990s, have been battered by aggressive Korean rivals
Samsung Electronics and LG Electronics.
The Sakai factory makes credit card-thin panels of liquid
crystal sandwiched between sheets of glass wider and longer than
king-sized beds that are cut up to make TV screens.
As the major shareholder in Sharp, which also builds screens
for Apple's iPhone and iPad, Hon Hai will scrutinise the
performance of other units, including a money-losing solar-panel
business, a profitable appliance division and a printer unit.
Sharp has said that to return to health, it will lay off
5,000 workers, its first redundancies in more than 60 years. It
may have to cut more, analysts say, if pressure from Gou adds to
a similar push from lenders to do more to turn itself around.