Japan in Depth / Sharp on track to recovery under Hon Hai umbrella

The Yomiuri Shimbun

By Takuya Ono and Takeru Tsuzuki / Yomiuri Shimbun Staff WritersOSAKA — Electronics maker Sharp Corp. marked the first anniversary on Saturday of it being taken under the umbrella of Taiwan contract electronics manufacturer Hon Hai Precision Industry Co.

With the help of Hon Hai’s cost-cutting know-how, Sharp is on track to a recovery. In fiscal 2016, Sharp registered its first annual group operating profit in three years.

However, Sharp is still a long way from a complete rebound, as sales have not recovered since its withdrawal from some unprofitable business sectors.

In June, leaders of four U.S. state governments, including Michigan and Wisconsin, visited Sharp headquarters in Sakai, Osaka Prefecture, to attract investment, after hearing that the beleaguered electronics maker was considering building its first liquid crystal panel factory in the United States.

A senior Sharp official said, “The possibility of building a factory for small- and medium-sized liquid crystal displays is high if conditions are met.” Sharp hopes to sell in-vehicle panels to major automakers.

Such activities would have been unthinkable in the past few years, when the struggling firm experienced repeated business shrinkages and withdrawals. With the help of financial backing from Hon Hai group, also known as Foxconn Technology Group, Sharp has started to change direction and expand its foreign operations once again.

In September, Sharp plans to exhibit its products for the first time in five years at an international trade show for consumer electronics and home appliances being held in Berlin.

The trade show is seen as a stage to showcase Sharp’s reentry to the European market of television sets, following its withdrawal in 2015.

In the North America market, Sharp is considering reentry under a new brand name, as it relinquished its Aquos liquid crystal television brand in the region.

‘Son in a rich family’

The driving force behind Sharp’s recovery is a thorough cost-cutting drive under the direction of its President Tai Jeng-wu, who was sent from Hon Hai. Tai introduced a new system of requiring approval from the president for company expenses of ¥3 million or more. This is a drastic change from the previous system of requiring approval for expenses of ¥500 million or more. In other words, Tai has been checking almost all the company’s contracts.

There have also been changes in parts procurement practices. A source close to the company said a Sharp employee requested a price reduction from a parts manufacturer after showing a comparison between Hon Hai’s previous transactions with other companies and the manufacturer’s transactions with Sharp.

Before assuming the current post, Tai bitterly criticized Sharp’s lack of cost consciousness. He described Sharp as being like “a son in a rich family.” However, Tai has recently given the company a passing grade, saying, “There has been a great improvement.”

In fiscal 2016, there was a reduction of more than ¥70 billion from a year earlier in expenditures including the cost of transportation and advertisement.

Direct support from Hon Hai has also been considered effective. Sharp released a cordless vaccuum cleaner in December 2016, the first home appliance product jointly developed with Hon Hai. The vaccuum, which had parts procured at reduced prices through Hon Hai’s supply network, has had sales above the initial target of 8,000 units per month. Sharp plans to release a new model of the vaccuum in September.

In China, sales of liquid crystal TV sets over the period from April to June in 2017 increased to more than three times the level a year earlier. Sharp has seen positive results from strengthening online sales in China in partnership with Hon Hai, which is familiar with business practices and distribution channels in the country.

Slowing sales

Sharp posted consolidated fiscal 2016 sales of ¥2.05 trillion, or a 16.7 percent decrease from a year earlier. This indicates that the company is yet to get back on a stable growth track.

Sharp hopes to equip some of its products, including TVs and cameras, with ultrahigh-definition resolution technology, known as 8K, and utilize them in areas such as face authentication and remote medical services. Although Sharp has set a target of about ¥3.25 trillion in sales in fiscal 2019, it is uncertain if the 8K technology will become as popular as the company hopes.

“Sharp improved its performance simply due to the help of Hon Hai,” BNP Paribas Securities analyst Mana Nakazora said. “I can’t see its own strength yet because I don’t think it has cultivated enough power to sell its products by itself.”Speech

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