After months of uncertainty, Taiwan’s Foxconn Electronics and Japan’s Sharp Corporation last month agreed to a multi-billion dollar deal that would allow the Taiwanese contract manufacturer to get a controlling stake in the beleaguered Japanese tech company. Under the terms of the deal, Foxconn reportedly agreed to pay $3.42 billion in exchange for 66% equity stake in the Tokyo-based company. Once the deal was officially announced, investors in the Japanese company seemed pleased at the turn of events, and on the day of the announcement, the company’s stock rose by 3.9% at the Tokyo Stock Exchange to end the day at 135 yen ($1.24). However, some in Taiwan have since raised doubts about how the world’s largest contract manufacturer will address the issue of having direct investments in and indirect links to three different display panel manufacturing companies.
According to a report published by Digitimes Research, Foxconn’s chairman, Mr. Terry Guo, is currently a 37.61% shareholder in Sakai Display Products (SDP) in his personal capacity, whereas Foxconn itself has investments in Innolux Corporation, which is a Taiwan-based manufacture of TFT LCD panels. However, Digitimes asserts that the three companies combined are not nearly as profitable as their nearest rivals, which happen to be the display panel manufacturing units of South Korean tech giants Samsung and LG. According to the report, “The combined 2015 revenues and net operating margin for SDP, Sharp's LCD business group and Innolux were lower than those for competitors Samsung Display and LG Display”.
According to industry insiders in Taiwan, what Foxconn now needs to do is create synergy between the three companies to increase overall profitability for its display panel manufacturing business. That won’t be the easiest of things right from the get-go given the three companies’ combined revenues stood at about $20.238 billion last year, which was actually a decrease of about 13.1% from their combined revenues in 2014. Meanwhile, not only did both Samsung and LG record higher revenues, profits and profit margins when compared to the combined figures of the three Taiwanese and Japanese companies in question, the two South Korean firms also each recorded growth in their respective display panel businesses, which is more than what can be said about the other three, when taken as a combined unit.
While Samsung’s display business grew 6.8% last year with revenues of $23.822 billion, LG Display did even better by recording $24.596 billion in revenues in 2015, which represents a growth of 7.3% year-on-year. Meanwhile, the three companies that Foxconn is betting on, also had lower operating margins than either Samsung or LG, given that the South Koreans had margins of 8.4% and 5.7% respectively, as opposed to the meagre 2.2% margin eked out by the SDP, Sharp and Innolux combined.