Posts Tagged ‘Foxconn’

Selling Wisconsin By the Panel

Politics and technology intersect more often than you might think. And no better example of this can be found than the announcement in 2018 by Terry Gou of Hon Hai Precision (Foxconn) that he would build a state-of-the-art, Gen 10 LCD panel manufacturing plant in Wisconsin, presumably to crank out large panels for Ultra HDTVs. The plant would be the center of a $10 billion high-tech campus near Racine and would have earned over $3 billion in state and local tax credits, and Gou predicted over 13,000 jobs would have been created.

To say that many of us analysts and members of the press greeted this announcement with surprise is an understatement. There’s a pretty good reason why no one manufactures LCD panels in the United States, and that would be the high finished cost of each panel. Given the collapsing retail price trends for 4K televisions, no one could ever hope to recover such an investment. Was Gou trying to pass off a bill of goods? What would those 13,000 people actually do at this facility?

Now, it appears he’s wavering in his commitment. After the village of Mount Pleasant issued bonds and borrowed $300 million dollars to acquire and clear land for the project, Gou was quoted in January of this year as saying that the television factory was a dead idea. “In terms of TV, we have no place in the U.S.,” he told Reuters. “We can’t compete.”

Apparently that comment set off a series of phone calls between Foxconn and the White House, because two days later, Gou reversed course. “After productive discussions between the White House and the company…Foxconn is moving forward with our planned construction of a Gen 6 fab facility,” the company said in a statement. “This campus will serve both as an advanced manufacturing facility, as well as a hub of high technology innovation for the region.”

This Gen 6 fab (motherglass of 1850mm x 1500mm) will take up over a million square feet and is scheduled to hire 1,500 positions. That seems a bit high to me for a facility that is largely automated – less than 100 people run one entire LCD line for LG Display in Paju, Korea. But Gou’s original deal with the state also promised that 5,000 people would be employed at the Gen 6 fab.

From an NBC News report this past Sunday, it appears quite a bit of land has been cleared for the project, some roads have been laid down, and some buildings have been put up. But little if any activity is taking place at the site, and residents are getting a bit irritated about the whole thing. Several sold their homes as part of eminent domain acquisitions by the town and now feel they were misled. A former gubernatorial candidate, Matt Flynn, exclaimed “This state got snookered. We really got taken to the cleaners on this!” in an interview with WMAQ-TV in Chicago.

The Gen 6 facility was described as one that would make smaller glass cuts or things like smartphones, tablets, computer screens, and small TVs. But the smartphone market is shifting to OLEDs, tablet sales are in steady decline, and small televisions are an extremely low-profit business. So why make that kind of investment?

Gou may also be changing his manufacturing plans again, according to a story in the Nikkei Asian Review from June 11. According to that story, “The products to be manufactured in the Wisconsin factory would be extended beyond the planned display panels to servers, networking products and automotive central controls. The factory is expected to be operational from the end of next year…while Foxconn had originally intended the plant to manufacture new generation liquid crystal displays, the company has scaled back its ambitions several times, citing the overcrowded display market.”

Gou could also be playing a long game, figuring any investments in Wisconsin will spare him the tariff fights currently going on between Washington and Beijing. Perhaps his thinking is that bringing any jobs at all to this part of Wisconsin will certainly curry favor. Indeed, Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, was quoted in the NBC story as saying, “Even if the project stopped where it is now, 1,500 jobs are nothing to sneeze at, and no one is out any money. This will still be the largest foreign investment that we’ve ever had in this region.”

In any case, the current governor of Wisconsin, Tony Evers (D), is all over Gou to get this project completed. What it will actually look like when completed is anyone’s guess, but from my perspective, it appears to be a classic “play for play” deal. And regardless of your political leanings, it still doesn’t make any sense economically to build an LCD panel fab in the United States, unless you’re happy to pay an arm and a leg for a new TV…

(This story originally appeared on Display Daily.)

You Don’t Need A Weatherman

Just when you think you’ve seen it all, you’re reminded of just how sharply the balance of power in consumer electronics manufacturing has shifted to China. In a New York Times story from February 2, Sharp Corporation – a Japanese colossus in everything from LCD displays to office products and personal gadgets – let it be known that they are seriously considering a sale to Hon Hai Precision Industries of Taiwan.

You may not recognize the name Hon Hai, but you may know one of their subsidiaries: Foxconn, the manufacturer of just about everything with an Apple logo on it (IPhones, iPads, MacBooks, Apple TV, etc.) And Hon Hai is no stranger to Sharp, having bought nearly 50% of the latter’s Gen 10 LCD fab capacity in Sakai, Japan a few years back.

Why, and how? Sharp did not fare well during the global recession. Sakai, the world’s largest LCD fab, opened in 2008 as the world economy was tanking, affecting demand for all things electronic – especially liquid-crystal displays. Because Hon Hai (er, Foxconn) uses VA-type glass in its products, chairman Terry Gou approached the company with a deal it couldn’t refuse – except that Sharp got back just 20 cents on the dollar for its $4B investment in Sakai.

Several years of brutal red ink for Sharp brought the company to where it is today. Having borrowed hundreds of millions of dollars from Japanese banks to stay afloat as its worldwide TV business evaporated (and having sold small minority shares to Qualcomm and Samsung along the way to raise additional cash), Sharp’s day of reckoning has arrived.

Those were the days, my friend...we thought they'd never end...

Those were the days, my friend…we thought they’d never end…

The company, which ten years ago had a 21% worldwide market share in LCD TV shipments, sold its North American TV business to Hisense last year, along with an assembly plant in Mexico. The Sharp name will still be found on LCD TVs made by Hisense in China and southeast Asia, but largely as a bargain brand.

Not surprisingly, Japanese banks are reluctant to throw more good money after bad. According to the story, Sharp has seen $10B in losses over the past five years, reporting a net loss of $200M for the most recent quarter. There is a home-grown suitor – the Innovation Network Corporation of Japan (INCJ), a government-backed organization that is trying to keep some semblance of display R&D and manufacturing in Japan.

Trouble is; Hon Hai’s offer of $5B is twice as much as INCJ is willing to put on the table. INCJ, though, has said they will push to line up more financing from Japanese banks. But given the staggering losses incurred by Sharp, Panasonic, and Sony a few years ago, combined with Toshiba’s “cooked books” and exit from the television market and similar departures by Mitsubishi and Hitachi, means the old ways of doing business in Tokyo are probably over for good.

And things aren’t all rosy for Hon Hai, either. Although they are a strong player in consumer electronics – perhaps the dominant player in manufacturing – their profit margins have been shrinking in recent years. The company has branched into electric cars and robotics to diversify, but acquiring Sharp could prove to be a bit too much to swallow.

This is the next

This is the next “gold rush” in display applications.

Gou would love to have that Gen 10 plant running in China, and if he’s as savvy as I suspect, he can already see the enormous market opening up for transportation displays – cars, buses, trains, planes, ships, trucks, you name it – around the world. These displays are small to mid-size, resulting in more lower-cost cuts from larger motherglass and higher yields (and probably higher sales numbers than TVs and computer monitors).

This trend became obvious a few years ago at CES and this year, it went off the charts. Consider the market for automobiles alone – virtual dashboards, center consoles, GPs, rear-seat TVs – and you can see the potential to make billions of dollars. But you’ve gotta have enough reasonably-priced “glass” to do it.

Sharp’s CEO Kozo Takahashi said the company would take until the beginning of March to make its decision. Should the board opt to take Gou’s offer, that decision could turn out to be a tipping point for other Japanese manufacturers who are struggling to see profits in display-related manufacturing and sales.

In any case, this should convince you that the landscape for consumer electronics really is changing, and changing in a BIG way. You’ll see increasing numbers of TCL and Hisense TVs in big box stores this year, competing with the “Big 3” – Samsung, LG, and Sony. You’ll also see more Chinese-branded mobile phones from carriers, along with personal electronics like smart watches.

Like Bob Dylan sang so many years ago, “You don’t need a weatherman to know which way the wind blows…”

For Samsung, It’s Now Their Game With Their Rules

Wide View Samsung Booth WR

In less than twenty years, Samsung has risen from a “who’s that?” manufacturer of cheap electronics to the pre-eminent CE brand, dominating the worldwide market for smart phones and televisions, and leading the charge for adoption of organic light-emitting diodes through its subsidiary, Samsung Mobile Display.

The rise in Samsung’s fortunes has paralleled the decline of the Japanese CE industry. Samsung ships roughly 25% of all TVs worldwide and manufactures better than 90% of the OLEDs used in handheld displays. In contrast, the three largest Japanese TV brands combined (Sony, Panasonic, and Sharp) captured less than 20% of the worldwide TV business in 2012 and lost billions of dollars while doing so.

It was one of only two companies to be profitable in televisions for 2012 (LG was the other) and invented a new product category – the “phablet,” or phone with a large (>5”) screen – that has surprised veteran analysts with rapid consumer acceptance.

To give you an idea of Samsung’s clout, it spends a great deal of time in patent courts, suing and being sued by Apple, the second-most-powerful CE brand in the world. (In a Bizzaro twist, Samsung has also partnered with Apple to bid on Kodak patents related to digital imaging.)

And now Samsung is making history: The company announced last week that it will invest $111 million in struggling Sharp Corporation, taking a 3% ownership stake in the manufacturer that has been on the verge of bankruptcy for several months now.

Having a Korean company acquire such a strong position in a legendary Japanese brand is unprecedented, but this action may have staved off a possible majority acquisition by Taiwan-based Hon Hai Precision (Chi Mei, Foxconn Group). And that would have been unthinkable in the Land of the Rising Sun.

Why is Samsung taking this step? The answer was foreshadowed over a year ago, when the company reorganized its unprofitable LCD panel manufacturing business as part of SMD. This move showed the company was shifting its R&D resources away from LCDs to OLEDs, a technology that is scalable to displays large and small, and offers numerous image quality and power consumption advantages over LCDs. (That is, if and when OLED yields on larger screens can be increased to workable levels. )

When you control 25% of the global TV market and make money doing it, why throw money away manufacturing LCD panels, which are now unprofitable commodities? Especially when the world’s largest LCD panel fab lies just across the Sea of Japan (or Korea, depending on your version of history) and you can buy inexpensive access to the next-generation of LCD (and OLED) backplane technology, IGZO?

According to a story on the Bloomberg Web site, Sharp is looking at 200 billion yen of convertible bonds that will come due later this year. But cash is hard to come by these days in Osaka, and Apple cut back much-needed orders for smaller LCD glass when iPhone demand began to tail off. A $140M investment by Qualcomm last December helped, but only to keep the vultures at bay for a few months.

In the meantime, Sharp is anticipating a record 450 billion yen ($4.7B) loss for the current fiscal year, which ends this month. Their stock price has dropped 55 percent in the past year, partly because the talks with Foxconn Group have dragged on so long. Sharp has mortgaged its corporate headquarters in Osaka and continues to look for more investors as red ink cascades from their balance sheet.

Amir Anvarzadeh, a manager for Asia equity sales at BGC Partners Inc. (BGCP) was quoted in the Bloomberg story as saying, “Chances for Sharp to revive as a standalone company are zero unless becoming part of a big group like Samsung or Foxconn.”

Speaking of Hon Hai, they’re apparently still in the game. Even though Foxconn Groups’s Terry Gou announced he would buy a nearly 10% stake in Sharp one year ago, the deal still hasn’t been consummated. (The two companies are still in talks, meeting one day after the Samsung announcement.)

This is indeed a new game with new rules. And no one is quite sure how it will play out. One thing we do know is that Samsung, with market-leading positions and $34B in cash, has the strongest hand in the world of consumer electronics right now.

And when you run the game, you get to make the rules…

This article originally appeared at Display Central.

Foxconn and Sharp to Launch 60-inch LCD-TV for $1000 – by Ken Werner

If you’ve been reading HDTVexpert.com or looking in at your favorite on-line or brick-and-mortar electronics retailer, you know that the very-large-screen segment – 55 inches or more – of the TV marketplace is hot. Prices are dropping rapidly and unit sales are growing fast. Furthermore, this is the only market segment in which both panel and set makers can make more than a hair’s breadth of profit.

Now, before we all get too excited, I should remind you that the 55-inch-and-over segment constitutes only 6 or 7 percent (in units) of the overall TV market, perhaps rising to 10% by 2015, according to DisplaySearch estimates. The 60-inch-and-over part of the market is perhaps 1% this year. Still, that’s the most profitable 1%, it accounts for over 2 million TV sets, and it’s growing.

Sharp, Foxconn, and Japanese Flags fly over Sharp facility in late August 2012, but the agreement for Foxconn to purchase a stake in Sharp was not finalized.

Now, what would happen to this segment if the panel maker that has the only

Sharp, Foxconn, and Japanese flags fly over Sharp facility in late August 2012, but the agreement for Hon Hai to purchase a stake in Sharp was not finalized.

Generation 10 LCD fab in the world – and is therefore uniquely equipped to make 60-inch panels less expensively than anybody else – were to collaborate with the world’s largest electronics contract manufacturer to make 60-inch LCD-TV sets? There is a good chance they could make them at a lower cost than anyone else, and dominate the market. Well, that is exactly what Hon Hai Precision Industry (Foxconn) of Taiwan and Sharp Electronics of Japan intend to do.

In early October, Jalen Chung and Francis Huang of Taiwan’s Central News Agency reported that Hon Hai may launch such a TV set as early as the end of October, with volume production beginning in early 2013, citing “market sources close to the company.” Hon Hai would not confirm an exact timetable for the official launch, but did say it could be imminent, and it confirmed that the LCD panels would come from Sharp’s Gen 10 plant in Sakai, 46.5% of which is owned by Terry Gou, Hon Hai’s Chairman.

Julian Ho and Alex Wolfgram of Digitimes added that the sets will be sold under the brand name SIO, quoting industry sources. Ho and Wolfgram also reported that the sets are likely to be priced at US $999 when they reach the North American market, but that may not happen for a while. CNA’s Chung and Huang reported that the initial sets, which will contain Internet TV functions, will first be sold in Taiwan and China before Foxconn promotes them on the global market.

Prior to the launch, Hon Hai intends to offer 60-inch TVs to hundreds of its employees at a special price of under NT $40,000 (US$1,365) per unit, which may be less than half the price set by other suppliers in the Taiwanese market.

Hon Hai and Sharp are still working to renegotiate the terms of an acquisition deal by which Hon Hai and some of its affiliates would buy nearly 10% of Sharp. In March, Hon Hai agreed to acquire the stake for ¥67 billion, or ¥550 per share. Since then, though, Sharp’s shares plummeted, reaching a low of ¥164 in mid-August. Hon Hai is understandably making use of a clause that permits it to renegotiation the terms of the acquisition. Sharp, in very deep financial trouble, has recently obtained financing that should, according to industry sources, give it time to finalize its agreement with Hon Hai.

But now, there are mutterings in the industry that the existing major TV players may not be able to compete with the Hon Hai-Sharp large-screen-TV behemoth, and that supply-chain participants will have to scramble to find places in a significantly restructured manufacturing environment . With that in mind, we can wonder what the new SIO brand stands for? Could it be “Sharp In Terry GOu’s pocket?”

Ken Werner is Principal of Nutmeg Consultants, specializing in the display industry, display manufacturing, and display technology.  You can reach him at kwerner@nutmegconsultants.com.