Taiwanese money can’t save Sharp from Korea’s Samsung. Foxconn’s $1.6 billion investment buys Japan’s electronics company time. The deal gives Sharp cash and the promise of wider sales too, but does nothing to reduce a global glut in flat-panel screens. Like Sony, Panasonic and Toshiba, Sharp has for too long insisted on fighting for cutthroat markets where it’s no longer competitive. As Hitachi has shown, withdrawal may be the best option.
In addition to its 10 percent shareholding, Foxconn’s parent Hon Hai gets a stake in a new factory that makes the larger TV screens so loved by couch potatoes. Falling prices prompted Sharp to cut production at the plant to half capacity. Hon Hai has now promised to buy half the plant’s output, helping Sharp sell beyond its own TV unit and save money on components.
But the deal fails to reduce oversupply and over-competition in both LCDs and branded TVs that has Sharp, Sony and Panasonic forecasting a combined $16 billion in losses for the year ending March 31. Samsung’s share of the global flat-panel TV market rose last year to a record 26 percent, according to DisplaySearch. That is more than Sony, Panasonic and Sharp put together. Japanese companies point a finger of blame at the rising yen, but the yen appreciated only 6 percent against Korea’s won in 2011.
But even Samsung has its issues. Yes, its TV business is profitable, but it lost $666 million last year making the LCD variety. In response, it plans to spin its LCD business off to focus on more advanced LED screens. Japan, meanwhile, has helped its LCD makers, providing $2.6 billion in government funds to Hitachi, Sony and Toshiba to combine their small-screen LCD operations into one company.
Sharp’s new president now says his company can no longer do everything from R&D to components to marketing. But at the root of this vertical integration is a refusal in corporate Japan to rationalise, cut workforce numbers and, more importantly, weed out unproductive managers. Hitachi, though still sprawling, is showing the way. After five years of suffering losses to keep its consumer electronics business growing, Hitachi let it shrink by 40 percent and now plans to stop making TVs by September.
And Hitachi returned to the black last year and now expects to post a $3.4 billion profit this year.