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Sharp shares down 8.7%, Foxconn 2.4% lower
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Japanese firm took $1.6 bln writedown on display business
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Foxconn posted lower-than-expected profit as a result
(Adds graphics, closing share prices)
By Kiyoshi Takenaka and Sarah Wu
TOKYO/TAIPEI, May 12 (Reuters) - Shares of Taiwan's
Foxconn and its display affiliate Sharp Corp fell on Friday after the Japanese firm reported a surprise $1.9
billion loss due to writedowns related to its flat-screen
assets.
Sharp's shares closed 8.7% lower on Friday, their biggest
one-day loss since February. Shares in Foxconn, Sharp's top
shareholder with a 34% direct stake, closed down 2.4% at a
nearly two-month low after reporting a big plunge in earnings
due to a $564 million hit related to the Japanese firm.
The surprise impairment led some analysts to downgrade their forecasts for Foxconn, the world's largest electronics contract manufacturer and a key Apple supplier. Daiwa cut its 2023 and 2024 earnings forecast for Foxconn by 14% and 5% respectively to reflect a non-operational loss from Sharp. "Given Sharp had a lot of trouble last year, we did see it coming, although we didn't know when or how much," Daiwa analyst Kylie Huang said. "I don't expect to see a further, wider loss from Sharp. But, again, Sharp is a wildcard." Foxconn said it would seek an explanation from the Japanese electronics firm and "work harder on the management of our investment businesses", adding that it would ask Sharp to "adjust its management team" to improve operations if needed. Sharp said it took a hit of 220 billion yen ($1.6 billion) as it wrote down the value of building and machinery in both its LCD and OLED display businesses in Japan, and other assets.
The biggest impairment of 188.5 billion yen came from a LCD
subsidiary, and a Sharp spokesperson said the majority of that
loss was attributable to its large-size flat screen business
Sakai Display Products Corp (SDP).
SDP makes large LCD panels used in televisions and its
top clients include South Korea's Samsung Electronics Co and LG Electronics . It has been a major
earnings drag due to weakening global demand for televisions and
other electronics products.
Sharp, which held a 20% stake in the loss-making business,
took over the remaining 80% stake from a Samoa based investment
firm last year and revised down in November its annual earnings
forecast for the year ended in March by 62%, citing deepening
losses at the unit.
Sharp said last year it decided to take full control of
Japan-based SDP to ensure a smooth supply of panels at a time
when it saw potential interest from clients seeking to diversify
their supplier bases beyond China amid mounting Sino-U.S. trade
tensions.
Foxconn, formally called Hon Hai Precision Industry Co
Ltd, had bailed out Sharp in 2016 by purchasing two-thirds of
the loss-making company for $3.5 billion, betting the deal would
help it strengthen its pricing power with Apple. Foxconn's other
affiliates also have stakes in Sharp.
Foxconn Chief Financial Officer David Huang said on an
earnings call on Thursday that Foxconn was Sharp's largest
shareholder, but noted it did not have the majority vote in the
Japanese company.
Huang said Sharp operated independently and was not
controlled by Foxconn. Sharp's CEO Wu Po-Hsuan previously worked
for the Taiwanese company.
Shares of Sharp have returned a negative 21%, including
dividends, since Foxconn formally signed the acquisition deal in
April 2016. Over the same period, Tokyo's TOPIX index
had positive returns of 89%, including dividends.
($1 = 135.0500 yen) ($1 = 30.6830 Taiwan dollars)
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Dull outcome Sharp's sharp fall ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Kiyoshi Takenaka and David Dolan in Tokyo and
Sarah Wu and Yimou Lee in Taipei; Writing by Anne Marie
Roantree; Editing by Miyoung Kim and Jamie Freed)
