Show

Foxconn makes $3.5 billion deal with Sharp

April 6th, 2016

 

The Apple iPhone transformed the technology industry by promoting the smartphone and creating a mobile future.

 

To continue to do this, the company needs a Taiwan-based factory operator called Foxconn, or  Hon Hai Precision Industry Company.

 

Employing thousands of workers in mainland China, Foxconn discovered a way to assemble an iPhone at a cost low enough for middle-class Americans to afford.

 

This company offered low profit margins, but the work planned Foxconn’s financial results, obtaining the status as the world’s largest maker of hardware for companies like Apple and Sony.

 

On Wednesday, Foxconn announced it struck a deal to acquire control of the Japanese screen maker Sharp for $3.5 billion, after weeks of negotiations and high-profile setbacks The Washington Post reported.

 

Vice Chairman Tai Jeng-wu, Chairman Terry Gou and Sharp President Kozo Takahashi met for a press conference in Sakai, Osaka in western Japan on Saturday, April 2, 2016.

 

The head of Taiwanese contract manufacturer Foxconn pledged Saturday to turn around Japan’s Sharp Corporation by driving change at the struggling LCD panel and home appliance maker, as the two companies signed a takeover deal after a one-month delay, according to Bloomberg.

 

The deal, for a 66 percent stake in Sharp, is intended to make Foxconn a more attractive partner for Apple.

 

The American technology company uses Sharp screens, which could give Foxconn added leverage in dealings between the two.

 

The Sharp purchase will weigh down Foxconn with an ailing business that will take considerable money and effort to turn around, according to The New York Times.

 

However, Apple has been diversifying its supply chain, giving some production contracts to other assemblers and component makers, while Foxconn is grappling with China’s rising labor costs and a slowdown in the global smartphone market.

 

The recent deal highlights the huge pressure that the industry’s shifting dynamics are placing on Foxconn. According to Bloomberg, Foxconn is trying to control more and more of the supply chain, while Apple needs to switch screen producers soon.

 

The deal is a return to form for Foxconn, formally known as Hon Hai Precision Industry, in its emphasis on scale. The company has been looking in recent years for ways to further cut costs, including investment in automation.

 

It has also expanded into businesses potentially more profitable than unskilled-work manufacturing, opening factories producing new technology like batteries for electric cars reported Bloomberg. Foxconn, most of whose factories are in China, is symbolic of the challenges facing the Chinese economy at large.

 

Even while it tries to maintain the huge scale and efficiency of its production base, it is trying to climb the value chain to find new, more profitable streams of revenue.

 

In addition, near Beijing, Foxconn operates a hardware incubator called Innoconn, which helps start-ups with production management while looking for investment targets.

 

Foxconn, founded in Taiwan as a maker of television knobs in 1974 by Mr. Gou, became a company with more than $100 billion in annual revenue by making things for other companies according to The New York Times.

 

At the Longhua complex, Foxconn coordinates more than 100,000 workers assembling devices, including the iPhone, in daily and nightly shifts, and the feeding, clothing and planning for the turnover of workers are gargantuan challenges.

 

Recently, Foxconn’s sales growth has slowed to single-digit percentages in the last two years from the double-digit growth it posted in the past, although profit growth has picked up recently, thanks in part to consumers buying bigger, more expensive phones with bigger screens.

 

Editor’s Note: Information from Bloomberg, The New York Times and The Washington Post was used in this report.