The sorry financial state of tech conglomerate Sharp has left few options for its creditors and potential acquirers in Japan.

But Taiwan-based Foxconn sees a chance to gain a brand name and a crack at making products for its own profit. Chairman Terry Gou told press that the company had signed for prioritized negotiating rights with Sharp as part of a bid to take over the company. Sharp released a statement contrary to Gou’s assertion, but indicated it would be negotiating with Foxconn through the end of the month.

Inside sources say that Sharp currently favors a Foxconn proposal worth $5.5 billion over a proposal from Innovation Network Corp. of Japan — a government holding fund with stakes in domestic tech companies — that would most likely spin-off each unit of the conglomerate and likely only be worth up to $2.56 billion. Foxconn’s proposal would only possibly end up spinning off the company’s lagging solar panel division.

Sharp has been on a financial downspiral decade-to-date as its main business of producing LCDs is dying with demand. Apple uses Sharp panels for its iPhones, but competing vendors including Samsung and LG Display have been promising factory capacity for OLED displays for an eventual transition in iPhone display technology.

Sharp has been financially handicapped from turning over production lines — it was twice-bailed out by its lenders during the past four years and has most recently reported double the quarterly loss it had last year.

Foxconn is the reportedly largest assembler of Apple’s mobile products and the largest contracted device manufacturer in the world. Despite a reported slowdown in iPhone production orders, it had operating revenue of $32 billion in its most recent quarter. Terry Gou wants to use some of his company’s money to make a name for itself.

Sharp is [a] very popular brand, and we, Foxconn, don’t have a brand. We are investing a lot of money in Sharp, and we wouldn’t do it if we were not confident about Sharp and its turnaround.

Sharp will be fighting to prevent a brain drain before new investment arrives — some of its esteemed engineers have quit their jobs and facilities are in need of an upgrade.

You may recall that the currently-troubled OEM HTC of Taiwan was once a very successful ODM. It seems that a Foxconn acquisition will keep the ODM business insulated from Sharp while taking advantage of having a developed parts source to build product to be sold under the latter’s badge.

Source: Wall Street Journal

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